Question 5: Cost-Volume-Profit Analysis

Sensus Pty Ltd has provided the following contribution format income statement. All questions concern situations that are within the relevant range.

Sales (9,000 units) $720,000

Variable expenses 432,000

Contribution margin 288,000

Fixed expenses 273,760

Net operating income $14,240

Required: Answer each question independently, based on the original data.

a. If sales decline to 7,900 units, what would be the estimated net operating income? (3 marks)

b. If the variable cost per unit increases by $5, spending on advertising increases by $2,000, and unit sales increase by 3,400 units, what would be the estimated net operating income? (3 marks)

c. What is the break-even point in dollar sales? (2 marks)

d. Estimate how many units must be sold to achieve a target profit of $50,400. (3 marks).

e. What is the margin of safety percentage, rounded to two decimal places? (2 marks)

f. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 15% increase in sales volume? (2 marks)