Roustabout Company manufactures skateboards. Last year’s income statement is summarized below. Skateboards(2,000 units) Total Sales Revenue $ 100,000 Variable...

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Finance

Roustabout Company manufactures skateboards. Last year’sincome statement is summarized below.
Skateboards(2,000 units)

Total
Sales Revenue $ 100,000
Variable Costs $ 40,000
Contribution Margin $ 60,000
Fixed Costs $ 55,500
Pre-Tax Profit $ 4,500
Required:
a. What is the CM per unit?
b. How many skateboards must be sold to breakeven?
c. What level of revenue is needed to earn a target pre-taxincome of $21,000? Use CM per unit to calculate your answer.
d. If variable costs increase to $30 per skateboard, whatdecrease in annual fixed costs must be achieved to keep the samebreakeven point as calculated in part b?
e. Back to original assumptions: What is the CM ratio?
f. Using the CM ratio, what level of revenue is needed tobreakeven?
g. Using the CM ratio, how many skateboards must be sold toearn a target pre-tax profit of $51,000?
h. How many skateboards must be sold to earn after-tax profitof $147,000 (with a tax rate of 30%)?
i. What is the margin of safety for Roustabout Company inunits and in dollars?
j. If Roustabout increases its sales by 5%, what will happento profits? Use degree of operating leverage to answer thisquestion.

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4.4 Ratings (686 Votes)

Ans Roustabout Company Contribution Income Statement Total Per unit Sales 2000 p 100000 50 Less Variable cost 2000 v 40000 20 Contribution margin 60000 30 Less Fixed cost 55500 Net income 4500 Selling price p per unit See Answer

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Roustabout Company manufactures skateboards. Last year’sincome statement is summarized below.Skateboards(2,000 units) Total Sales Revenue $ 100,000Variable Costs $ 40,000Contribution Margin $ 60,000 Fixed Costs $ 55,500Pre-Tax Profit $ 4,500 Required:a. What is the CM per unit?b. How many skateboards must be sold to breakeven?c. What level of revenue is needed to earn a target pre-taxincome of $21,000? Use CM per unit to calculate your answer.d. If variable costs increase to $30 per skateboard, whatdecrease in annual fixed costs must be achieved to keep the samebreakeven point as calculated in part b?e. Back to original assumptions: What is the CM ratio?f. Using the CM ratio, what level of revenue is needed tobreakeven?g. Using the CM ratio, how many skateboards must be sold toearn a target pre-tax profit of $51,000?h. How many skateboards must be sold to earn after-tax profitof $147,000 (with a tax rate of 30%)?i. What is the margin of safety for Roustabout Company inunits and in dollars?j. If Roustabout increases its sales by 5%, what will happento profits? Use degree of operating leverage to answer thisquestion.