Laila company has provided the following information about the company Sales $225,000 Sales Discount $20,000 Overhead

Question

Laila company has provided the following information about the company Sales $225,000 Sales Discount $20,000 Overhead cost (Fixed) $ 35,000 Overhead (Variable) $ 20,000 Sales Return /Allowance $2,500 Selling commission (variable $ 39,600 Selling commission fixed $ 15,000 Variable admin expenses $ 24500 Fixed admin expenses $ 20,000 Tax 25% Interest expenses $5,420 Capacity of producing 4,000 units Units sold 3,500 Units produced 3.500 Hintall selling and admin costs are operating expenses REQUIRED 1. Calculate the net income using contribution approach 2. Calculate Net income using the absorption method [ Financial Accounting method) 3. Find CM per unit and the Contribution Margin Ratio 4. Determine the breakeven sales in units and dollars 5. Calculate margin of safety in dollars and in percentage 6. The sales manager believes that a project of the company could increase sales by 25% but variable cost will also decrease by 55.000 and fixed cost will increase by 5 85,000. Should the

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1. Net income: $ 32,235 Contribution Margin Income Statement Net Sales $202,500 Less: Variable Expenses Variable overhead $ 20,000 Selling commission 39,600 Variable admin. expenses 24,500 Total variable expenses 84,100 Contribution Margin 118,400 Fixed Expenses Fixed overhead 35,000 Selling commission 15,000 Fixed admin expenses 20,000 70,000 Income from operations 48,400 Interest expense 5,420 Income before taxes 42,980 Tax @ 25% 10,745 Net Income $ 32,235 2. Net income: $ 32,235 Absorption Costing Income Statement Net Sales $ 202,500 Less: Cost of Goods Sold 55,000 Gross Profit 147,500 Selling and Administrative Expenses Selling Expenses $ 54,600 Admin. Expenses 44,500 Total Selling and Administrative Expenses 99,100 Income from Operations 48,400 Interest Expense 5,420 Income before Taxes 42,980 Income Tax Expense 10,745 Net Income $ 32,235 3. CM per unit = $ 118,400 / 3,500 units = $ 33.83 Contribution margin ratio = $ 118,400 / $ 202,500 = 58.47 % 4. Break-even sales units = Total Fixed Cost / CM per unit = $ 70,000 / $ 33.83 = 2,069.17 units Break-even sales dollars = $ 70,000 / 58.47 % = $ 119,719.51

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Contribution Margin Income Statement
Net Sales		$202,500
Less: Variable Expenses
Variable overhead	$ 20,000
Selling commission	39,600
Variable admin. expenses	24,500
Total variable expenses		84,100
Contribution Margin		118,400
Fixed Expenses
Fixed overhead	35,000
Selling commission	15,000
Fixed admin expenses	20,000	70,000
Income from operations		48,400
Interest expense		5,420
Income before taxes		42,980
Tax @ 25%		10,745
Net Income		$ 32,235

	Absorption Costing Income Statement
Net Sales		$ 202,500
Less: Cost of Goods Sold		55,000
Gross Profit		147,500
Selling and Administrative Expenses
Selling Expenses	$ 54,600
Admin. Expenses	44,500
Total Selling and Administrative Expenses		99,100
Income from Operations		48,400
Interest Expense		5,420
Income before Taxes		42,980
Income Tax Expense		10,745
Net Income		$ 32,235