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7-1B CVP Analysis, Margin of Safety, Degree of Operating Leverage Floras Flats...

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Accounting

7-1B CVP Analysis, Margin of Safety, Degree of Operating Leverage
Floras Flats produces comfortable and portable womens shoes designed to be worn as a second
pair of shoes after a formal event. The company has the following financial information:
The companys sales price is $20 per unit. The variable costs of producing flats is $6 per unit.
The company expects to have fixed costs of $10,000 next year. The company expects to sell
1,000 pairs of flats next year. Assume no taxes.
a.) Calculate the breakeven point in units.
b.) Calculate the breakeven point in dollars.
c.) How many units must the company sell to reach a target profit of $25,000?
d.) Prepare a budgeted contribution format income statement.
e.) Compute the margin of safety in both dollar and percentage terms.
f.) Compute the degree of operating leverage.
g.) If sales increase by 20% in the following year, how much would net income increase (use
the degree of operating leverage to compute your answer).

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