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1)Muscat Contribution Income Statement is presented below [ 7 marks]: Total Sales (600 units) $36,000 Variable expenses $12,000 Contribution Margin $24,000 Fixed expenses $6,000 Net Income $18
1)Muscat Contribution Income Statement is presented below [ 7 marks]: Total Sales (600 units) $36,000 Variable expenses $12,000 Contribution Margin $24,000 Fixed expenses $6,000 Net Income $18.000 Required: a. Prepare Contribution Income Statement assuming that the business expects an increase in its total sales by $3,000 and decrease in variable cost per unit by 10%. (4 marks) b. Referring to the original contribution statement, calculate BEP in dollars. (1 mark) c. Referring to the original contribution statement, how many units would have to be sold by the business to earn a target profit of $26,000. Use the equation/ formula method and verify your answer by preparing Contribution Income Statement.
2) Peaceful Company realized a net income of P800,000 and paid dividends of P5.00 per share on its 21,000 ordinary shares issued and outstanding. In 2017, the company incurred a net loss of P95,000 and paid no dividends. How much is the balance of the Accumulated profits account as of December 31, 2017?
Expert Solution
1)
| Per unit (in dollars) | |
| Sales price per unit ($36,000/600) [A] | 60 |
| Variable expenses ($12,000/600) [B] | 20 |
| Contribution per unit [C]=[A]-[B] | 40 |
Profit volume ratio= Contribution/sales
=40/60
=66.67%
a)
| Sales (650 units) | $ 39,000 |
| Variable expenses | $ 11,700 |
| Contribution | $ 27,300 |
| Fixed Expenses | $ 6,000 |
| Net Income | $ 21,300 |
Notes:-
- Increase in Sales units= Increase in Sales value/ sale price per unit
=$ 3000/60
=50 units
Total sale units= 600+50=650 units
- Variable Expenses=
New variable cost per unit=20*(1-10%)
=$18 per unit
Total variable Expenses= $18*650 units= $ 11,700
b) BEP (in dollars)= Fixed expenses/Profit volume ratio
=$ 6000/66.67%
=$ 9000
c)
| Required Income [A] | $ 26,000 |
| Fixed Expense [B] | $ 6,000 |
| Required Contribution [A]+[B] | $ 32,000 |
- Total Contribution required= $ 32,000
- Contribution per unit= $40
- Units required= Total Contribution/ Contribution per unit
=$ 32,000/$ 40
=800 Units
Income Statement (800 units)
| Sales (800 units) | $ 48,000 |
| Variable expenses | $ 16,000 |
| Contribution | $ 32,000 |
| Fixed Expenses | $ 6,000 |
| Net Income | $ 26,000 |
2)
Solution:
Balance in accumulted Profits account = Net income for 2016 - dividend paid in 2016 - net loss or 2017
= 800000 - (21000*5) - 95000
= P600,000
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