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Emerald, Inc, produces a single product

Accounting

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Emerald, Inc, produces a single product. The results of the company's operations for a typical month are summarized in contribution format as follows:

 

Sales $540,000

Variable expenses 360,000

Contribution margin 180,000

Fixed expenses 120,000

Net operating income $ 60,000

 

The company produced and sold 120,000 kilograms of product during the month. There was no beginning or ending inventories.

 

Required:

a. Given the present situation, compute

1) The break-even sales in kilograms.

2) The break-even sales in dollars.

3) The sales in kilograms that would be required to produce net operating income of $90,000.

4) The margin of safety in dollars.

 

b. An important part of processing is performed by a machine that is currently being leased for $20,000 per month. The company has been offered an arrangement whereby it would pay $0.10 royalty per kilogram processed by the machine rather than the monthly lease.

1) Should the company choose the lease or the royalty plan?

2) Under the royalty plan compute break-even point in kilograms.

3) Under the royalty plan compute break-even point in dollars.

4) Under the royalty plan determine the sales in kilograms that would be required to produce net operating income of $90,000.