Speedy Mouse Inc. makes a special mouse for computers. Each mouse sells for $25 and annual production

Question:

Speedy Mouse Inc. makes a special mouse for computers. Each mouse sells for $25 and annual production and sales are 120,000 units. Costs for each mouse are as follows:

Direct material ........................$ 6.00

Direct labor............................ 3.00

Variable overhead.................... 0.80

Variable selling expenses.......... 2.20

Total variable cost..................$12.00

Total fixed overhead............... $589,550

a. Calculate the unit contribution margin in dollars and the contribution margin ratio for the product.

b. Determine the break-even point in number of mice.

c. Calculate the dollar break-even point using the contribution margin ratio.

d. Determine Speedy Mouse Inc.'s margin of safety in units, in sales dollars, and as a percentage.

e. Compute Speedy Mouse Inc.'s degree of operating leverage. If sales increase by 25 percent, by what percentage would before-tax income increase?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...