1ACCT 202 PRINCIPLES OF MANAGERIAL ACCOUNTING

SECTIONS 601 AND 602 - FALL 2004 - DR. FRED BARBEE

HOMEWORK ASSIGNMENT #4
DUE: SEPTEMBER 29, 2004
Johnson Company produces a variety of chemicals. One division makes reagents for
laboratories. The divisions projected income statement for the coming year is as
follows:
Sales (128,000 units @ $50)
Less: Variable Expenses
Contribution Margin

$6,400,000
4,480,000
$1,920,000

Less: Fixed Expenses

1,000,000

Operating Income

$920,000

REQUIRED:
1.

Compute the contribution margin per unit and calculate the break-even point in
units (round to the nearest unit). Calculate the contribution margin ratio and the
breakeven sales revenue.

2.

The divisional manager has decided to increase the advertising budget by

$100,000. This will increase sales revenues by $1 million. By how much will
operating income increase or decrease as a result of this action?

3.

Suppose sales revenues exceed the estimated amount on the income statement by
$315,000. Without preparing a new income statement, by how much are profits
underestimated?

4.

Refer to the original data. How many units must be sold to earn an after-tax profit
of $630,000? Assume a tax rate of 40 percent.

5.

Compute the margin of safety based on the original income statement.

6.

Compute the operating leverage based on the original income statement. If sales
revenues are 20% greater than expected, what is the percentage increase in
profits?