Chapter 7, Problem 57P

### Managerial Accounting: The Corners...

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

Chapter
Section

### Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
311 views

# Carlyle Lighting Products produces two different types of lamps: a floor lamp and a desk lamp. Floor lamps sell for $30, and desk lamps sell for$20. The projected income statement for the coming year follows:The owner of Carlyle estimates that 60% of the sales revenues will be produced by floor lamps and the remaining 40% by desk lamps. Floor lamps are also responsible for 60% of the variable cost. Of the fixed cost, one-third is common to both products, and one-half is directly traceable to the floor lamp product line.Required: 1. Compute the sales revenue that must be earned for Carlyle to break even. (Round the contribution margin ratio to six digits and sales revenue to the nearest dollar.) 2. Compute the number of floor lamps and desk lamps that must be sold for Carlyle to break even. 3. Compute the degree of operating leverage for Carlyle. Now assume that the actual revenues will be 40% higher than the projected revenues. By what percentage will profits increase with this change in sales volume?

1.

To determine

Calculate break-even sales revenue.

Explanation

Break-Even Sales Revenue:

Break-even sales revenue can be evaluated by dividing the total amount of fixed cost by the contribution margin ratio.

Use the following formula to calculate break-even point in sales dollars:

Break-even sales revenue=Total fixed costContribution margin ratio

Substitute $150,000 for the total fixed cost and 0.333333 for contribution margin ratio in the following formula. Break-even sales revenue=$150,0000

2.

To determine

Calculate break-even units to be sold of floor lamps and desk lamps.

3.

To determine

Calculate the degree of operating leverage for Company CLP. Also find out the percentage increase in profit if actual revenues will be 40% higher.

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