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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Klamath Company produces a single product. The projected income statement for the coming year is as follows:

Chapter 7, Problem 47E, Klamath Company produces a single product. The projected income statement for the coming year is as

Required:

1. Compute the unit contribution margin and the units that must be sold to break even.

2. Suppose 10,000 units are sold above break-even. What is the operating income?

3. Compute the contribution margin ratio. Use the contribution margin ratio to compute the break-even point in sales revenue. (Note: Round the contribution margin ratio to four decimal places, and round the sales revenue to the nearest dollar.) Suppose that revenues are $200,000 more than expected for the coming year. What would the total operating income be?

1.

To determine

Calculate unit contribution margin and break-even units to be sold.

Explanation

Contribution margin:

Contribution margin can be defined as the amount obtained after deducting the variable expense from sales revenue. It means the amount of sales left after covering the variable expenses.

Break-Even Point:

The point or situation where the amount of total cost is equivalent to total revenue is known as the break-even point. It is the point where there is no loss or no profit.

Use the following formula to calculate unit contribution margin:

Unitcontributionmargin=ContributionmarginindollarsUnitssold

Substitute $1,856,400 for contribution margin in dollars and 54,600 units for units sold in the above formula

2.

To determine

Calculate operating income if 10,000 units are sold above break-even.

3.

To determine

Calculate contribution margin ratio and break-even sales revenue. Also calculate the total operating income by assuming that the revenue will increase by $200,000 in the coming year.

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