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Argosy University/ Phoniex University/
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Phoniex University
Oct-2001 - Nov-2016
37. LO.1–LO.3 & LO.5 (CVP single product; comprehensive) Beantown Baseball Company makes baseballs that sell for $13.00 per two-pack. Current annual production and sales are 960,000 baseballs. Costs for each baseball are as follows:
|
Direct material |
$2.00 |
|
Direct labor |
1.25 |
|
Variable overhead |
0.50 |
|
Variable selling expenses |
0.25 |
|
Total variable cost |
$4.00 |
|
Total fixed overhead |
$1,250,000 |
a. Calculate the unit contribution margin in dollars and the contribution margin ratio for the company.
b. Determine the break-even point in number of baseballs.
c. Calculate the dollar break-even point using the contribution margin ratio.
d. Determine the company’s margin of safety in number of baseballs, in sales dollars, and as a percentage.
e. Compute the company’s degree of operating leverage. If sales increase by 30 percent, by what percentage would pre-tax income increase?
f. How many baseballs must the company sell if it desires to earn $1,096,000 in pre- tax profit?
g. If the company wants to earn $750,000 after tax and is subject to a 40 percent tax rate, how many baseballs must be sold?
h. How many baseballs would the company need to sell to break even if its fixed cost increased by $50,000? (Use original data.)
i. Beantown Baseball Company has received an offer to provide a one-time sale of 20,000 baseballs at $8.80 per two-pack to the Lowell Spinners. This sale would not affect other sales, nor would the cost of those sales change. However, the vari- able cost of the additional units would increase by $0.20 for shipping, and fixed cost would increase by $6,000. Based solely on financial information, should the company accept this offer? Show your calculations. What other factors should the company consider in accepting or rejecting this offer?
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