Raveen Products sells camping equipment. One of the company’s products, a camp lantern, sells for $100 per unit. They managed to sell 10,000 lanterns per month. Variable expenses are $65 per lantern, and fixed expenses associated with the lantern total $140,000 per month. Required: Compute the company’s break-even point in number of lanterns. Compute the company’s break-even point in total sales dollars. Compute the company’s Margin of Safety in sales dollar.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Raveen Products sells camping equipment. One of the company’s products, a camp lantern, sells for $100 per unit. They managed to sell 10,000 lanterns per month. Variable expenses are $65 per lantern, and fixed expenses associated with the lantern total $140,000 per month.
Required:
- Compute the company’s break-even point in number of lanterns.
- Compute the company’s break-even point in total sales dollars.
- Compute the company’s Margin of Safety in sales dollar.
- Compute the company’s Margin of Safety in percentage.
- If the variable expenses per lantern increase as a percentage of the selling price, Will it result in a higher or a lower break-even point? (Assume that the fixed expenses remain unchanged.)
At present, the company is selling 10,000 lanterns per month. The sales manager is convinced that a 15% reduction in the selling price will result in a 45% increase in the number of lanterns sold each month. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes.
- Calculate Contribution Margin Amount of Present Operating Conditions
- Calculate Net Profit of Present Operating Conditions
- Calculate Contribution Margin Amount after Proposed Changes
- Calculate Net Profit after Proposed Changes
- Refer to the data of proposed changes of sales manager above. How many lanterns (Quantity only) would have to be sold at the new selling price to yield a minimum net operating income of $80,000 per month?
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