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# 12. LO.2 (Break-even point) Diamond Jims makes & sells class rings for local schools.

Operating information is as follows: Selling price/ring \$600 Variable cost/ring: Rings & stones \$220 Sales commissions \$48 Overhead \$32 Annual fixed cost: Selling expenses \$180,000 Administrative expenses 105,000 Manufacturing 60,000

a. What is Diamond Jims break-even point in rings? b. What is Diamond Jims break-even point in sales dollars? c. What would Diamond Jims break-even point be if sales commissions d to\$54? d. What would Diamond Jims break-even point be if selling expenses decreased by \$6,000? 16. LO.3 (CVP) Bills Cabinets sells a product for \$360/unit. The companys variable cost/unit is: \$60 for DM, \$50/unit for DL \$34/unit for OH. Annual fixed production overhead is \$74,800 Fixed selling & administrative overhead is \$50,480. a. What is the contribution margin per unit? b. What is the contribution margin ratio? c. What is the break-even point in units? d. Using the contribution margin ratio, what is the break-even point in sales dollars? e. If Bills Cabinets wants to earn a pre-tax profit of \$51,840, how many units must the company sell? 18. LO.3 (CVP; taxes) Use the information for Bills Cabinets in Exercise 16 & assume a tax rate for the company of 30%. a. If Bills Cabinets wants to earn an after-tax profit t of \$135,800, how many units must the company sell? b. If Bills Cabinets wants to earn an after-tax profit t of \$5.60/unit sold, how many units must they sell? 23. LO.3 (CVP analysis) Following are abbreviated income statements for two companies, Ainsley & Bard: Ainsley Bard Sales \$2,000,000 \$2,000,000 Variable cost (1,400,000) 0 Contribution margin \$ 600,000 \$2,000,000 Fixed cost 0 (1,400,000) Operating income \$ 600,000 \$ 600,000 Ainsley & Bard produce an identical product & both sell that product at \$40. Both companies are searching for ways to increase operating income. Managers of both companies are considering three identical strategies. Consider each of the following strategies, & discuss which company is best situated to adopt that strategy. a. Decrease sales price 30 percent to increase sales volume 60 percent. b. Increase sales price per unit 30 percent, which will cause sales volume to decline by 15 percent. c. Increase advertising by \$200,000 to increase sales volume by 15,000 units.

24. LO.4 (CVP; multiproduct) Mels Male Accessories sells wallets & money clips. Historically, the fi rms sales have averaged three wallets for every money clip. Each wallet has an \$8 contribution margin, & each money clip has a \$6 contribution margin. Mels incurs fi xed cost in the amount of \$180,000. Th e selling prices of wallets and money clips, respectively, are \$30 & \$15. Th e corporate-wide tax rate is 40 percent. a. How much revenue is needed to break even? How many wallets & money clips does this represent? b. How much revenue is needed to earn a pre-tax profi t of \$150,000? c. How much revenue is needed to earn an after-tax profi t of \$150,000? d. If Mels earns the revenue determined in (b) but does so by selling fi ve wallets for every two money clips, what would be the pre-tax profi t (or loss)? Why is this amount not \$150,000? 25. LO.4 (Multiproduct) Mean Machine makes three types of electric scooters. Th e companys total fi xed cost is \$1,080,000,000. Selling prices, variable cost, & sales percentages for each type of scooter follow: Selling Price Variable Cost Percent of Total Unit Sales Mod \$2,200 \$1,900 30 Rad 3,700 3,000 50 X-treme 6,000 5,000 20 a. What is Mean Machines break-even point in units & sales dollars? b. If the company has an after-tax income goal of \$1 billion & the tax rate is 50 percent, how many units of each type of scooter must be sold for the goal to be reached at the current sales mix? c. Assume the sales mix shifts to 50 percent Mod, 40 percent Rad, & 10 percent X-treme. How does this change aff ect your answer to part (a)? d. If Mean Machine sold more X-treme scooters & fewer Mod scooters, how would your answers to parts (a) & (b) change? No calculations are needed. 28. LO.5 (Operating leverage; margin of safety; income statement) Tennessee Tonic makes a high-energy protein drink. Th e selling price per gallon is \$7.20, & variable cost of production is \$4.32. Total fi xed cost per year is \$316,600. Th e company is currently selling 125,000 gallons per year. a. What is the margin of safety in gallons? b. What is the degree of operating leverage? c. If the company can increase sales in gallons by 30 percent, what percentage increase will it experience in income? Prove your answer using the income statement approach. d. If the company increases advertising by \$41,200, sales in gallons will increase by 15 percent. What will be the new break-even point? Th e new degree of operating leverage?