Oak Hammock Company prepared the following income statement for its 15,000 bucket sales for the first quarter
Question:
Oak Hammock Company prepared the following income statement for its 15,000 bucket sales for the first quarter of 2024:
Pro Format Income Statement - Quarter 1, 2024 Sales | $ 120,000.00 |
COGS (40% variable and 60% fixed) | $ 75,000.00 |
Gross Profit | $ 45,000.00 |
S&A expenses: | |
Sales commissions (10% of sales as a network sales agents) | $ 12,000.00 |
Fixed selling expense | $ 4,000.00 |
Fixed administrative expense | $ 3,000.00 |
Total S&A expenses | $ 19,000.00 |
Operating Income before taxes | $ 26,000.00 |
Income taxes (40%) | $ 10,400.00 |
Operating Income after taxes | $ 15,600.00 |
Tasks: Answer the following questions:
a) Calculate the contribution margin ratio.
b) Calculate the total fixed costs.
c) Calculate the break-even point in units.
d) Calculate the break-even point sales dollars.
e) Calculate how much sales dollars the company need to generate to earn a target operating income after taxes of $31,200.
f) Assume that the company expects to sell 20,000 buckets. What is the operating leverage?
g) Using the operating leverage, if sales increase by 10% of the expected sales, by how much will operating income increase?
h) Using the operating leverage, if sales decrease by 15% of the expected sales, what is the projected operating income?
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118033890
3rd Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly