Maxson products distributes a single product, a woven basket whose

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Chapter 3

Maxson Products distributes a single product, a woven basket whose selling price is $8 and whose variable cost is $6 per unit. The company’s monthly fixed expense is $5,500.

 

Required:

1.     Compute for the company’s break-even point in unit sales using the equation method.

2.     Compute for the company’s break-even point in sales dollars using the equation method and the CM ratio.

 

 

3.     Compute for the company’s break-even point in unit sales using the formula method.

4.     Compute for the company’s break-even point in sales dollars using formula method and the CM ratio

 

 

3) Mohan Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning next month’s budget appear below:

 

   Selling price   $25 per unit

  Variable expenses $15  per unit

  Fixed expenses $8,500 per month

  Unit sales 1,000  units per month

 

Required:

1) Compute the company’s margin of safety. 

 

 

2) Compute the company’s margin of safety as a percentage of its sales.

 

4)Last month when Harrison Creations, Inc., sold 40,000 units, total sales were $300,000, total variable expenses were $240,000, and fixed expenses were $45,000.

  

Required:

1)  What is the company’s contribution margin (CM) ratio?

2)  Estimate the change in the company’s net operating income if it were to increase its total sales by $1,500.