Managerial Accounting - Question 2

Belli-Pitt, 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 were 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. Belli-Pitt 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.