Annual sales volume Velcro 101,600 Metal 203,200 Nylon 406,400 Unit selling price $ 1.65 $ 1.50...

Transcribed Image Text:

Annual sales volume Velcro 101,600 Metal 203,200 Nylon 406,400 Unit selling price $ 1.65 $ 1.50 $ 0.85 Variable expense per unit $ 1.25 $ 0.70 $ 0.25 Contribution margin per unit $ 0.40 $ 0.80 $ 0.60 Total fixed expenses are $408,000 per period. Of the total fixed expenses, $20,000 could be avoided if the Velcro product is dropped, $80,000 if the Metal product is dropped, and $60,000 if the Nylon product is dropped. The remaining fixed expenses of $248,000 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business. The company's managers would like to compute the break-even point in dollar sales for the company as a whole, and the break-even point in unit sales for each product. They are considering two methods for computing each product's break-even point in unit sales: Method number 1: Include each product's traceable fixed costs and an allocated share of the common fixed costs in the numerator of each break-even calculation. The common fixed costs would be allocated to the three products using sales dollars as the allocation base. Method number 2: Only include each product's traceable fixed costs in the numerator of each break-even calculation. Required: 1. Using data from the most recent period, prepare a contribution format segmented income statement. 2. What is the company's overall break-even point in dollar sales? 3a. Calculate the break-even point in unit sales for each product using method 1. 3b. What will be the company's overall profit if it sells exactly the break-even quantity of each product? 4a. Calculate the break-even point in unit sales for each product using method 2. 4b. What will be the company's overall profit if it sells exactly the break-even quantity of each product? 5. Which method should the company use to calculate each product's break-even point in unit sales? Annual sales volume Velcro 101,600 Metal 203,200 Nylon 406,400 Unit selling price $ 1.65 $ 1.50 $ 0.85 Variable expense per unit $ 1.25 $ 0.70 $ 0.25 Contribution margin per unit $ 0.40 $ 0.80 $ 0.60 Total fixed expenses are $408,000 per period. Of the total fixed expenses, $20,000 could be avoided if the Velcro product is dropped, $80,000 if the Metal product is dropped, and $60,000 if the Nylon product is dropped. The remaining fixed expenses of $248,000 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business. The company's managers would like to compute the break-even point in dollar sales for the company as a whole, and the break-even point in unit sales for each product. They are considering two methods for computing each product's break-even point in unit sales: Method number 1: Include each product's traceable fixed costs and an allocated share of the common fixed costs in the numerator of each break-even calculation. The common fixed costs would be allocated to the three products using sales dollars as the allocation base. Method number 2: Only include each product's traceable fixed costs in the numerator of each break-even calculation. Required: 1. Using data from the most recent period, prepare a contribution format segmented income statement. 2. What is the company's overall break-even point in dollar sales? 3a. Calculate the break-even point in unit sales for each product using method 1. 3b. What will be the company's overall profit if it sells exactly the break-even quantity of each product? 4a. Calculate the break-even point in unit sales for each product using method 2. 4b. What will be the company's overall profit if it sells exactly the break-even quantity of each product? 5. Which method should the company use to calculate each product's break-even point in unit sales?

Answer rating: 100% (QA)

Contribution Format Segmented Income Statement Product Velcro Metal Nylon Total Sales 101600 203200 ... View the full answer