Shelly's Boutiques and Crafts had revenue of $5,700,000 this year on sales of 575,000 units. Variable...

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Shelly's Boutiques and Crafts had revenue of $5,700,000 thisyear on sales of 575,000 units. Variable costs were 35% and fixedcosts totaled $3,150,000. Although the first five years wererelatively profitable, increases in competition have led to anegative trend in profitability that has led them to the pointwhere they have to make some changes to stay afloat. The company isevaluating two options to stay afloat.
Option 1: Purchase machinery to automate their operations. thismachinery cost $625,000 but will decrease variable costs by 9%
Option 2: Outsource the production of one of their maincomponents that requires a substantial amount of machinery andskilled labor. This will reduce fixed costs by $425,000, butincreases variable costs from their current 35% of sales to 40% ofsales.
a. determine break even points in units before changes. what isfixed cost total? what is the contribution margin per unit? what isthe break even point in units?
b.) Assuming an income tax rate of 35%, what dollar value ofsales is required to earn an after tax profit of $800,000 Whatbefore tax profit would be needed to earn an after tax profit of$800,000? what is the contribution margin raton? What dollar amountof sales would be required to earn the after tax profit describedabove?
c.) Calculate the operating leverage before applying any of theoptions: What is the contribution margin in Total? What is theoperating income in total? what is the operating leveragefactor?
d.) Calculate the break even point in units after applyingOption 1: What is the new fixed cost in total? What is the newcontribution margin per unit? What is the new break even point inunits?
e.) Calculate the operating leverage after applying Option 1:What is the new contribution margin in Total? What is the newoperating income in total? what is the new operating leveragefactor?
f.) Calculate the break even point in units after applyingOption 2: What is the new fixed cost in total? What is the newcontribution margin per unit? What is the new break even point inunits?
g.) Calculate the operating leverage after applying Option 2:What is the new contribution margin in Total? What is the newoperating income in total? what is the new operating leveragefactor?

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3.7 Ratings (611 Votes)

Sales per unit S total revenue number of units 5700000575000 991 per unit Variable cost per unit VC Total variable cost number of units 35total revenuenumber of units 355700000575000 347 a Breakeven quantity Q FCS VC 3150000991 347 48886640 units Contribution See Answer

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Shelly's Boutiques and Crafts had revenue of $5,700,000 thisyear on sales of 575,000 units. Variable costs were 35% and fixedcosts totaled $3,150,000. Although the first five years wererelatively profitable, increases in competition have led to anegative trend in profitability that has led them to the pointwhere they have to make some changes to stay afloat. The company isevaluating two options to stay afloat.Option 1: Purchase machinery to automate their operations. thismachinery cost $625,000 but will decrease variable costs by 9%Option 2: Outsource the production of one of their maincomponents that requires a substantial amount of machinery andskilled labor. This will reduce fixed costs by $425,000, butincreases variable costs from their current 35% of sales to 40% ofsales.a. determine break even points in units before changes. what isfixed cost total? what is the contribution margin per unit? what isthe break even point in units?b.) Assuming an income tax rate of 35%, what dollar value ofsales is required to earn an after tax profit of $800,000 Whatbefore tax profit would be needed to earn an after tax profit of$800,000? what is the contribution margin raton? What dollar amountof sales would be required to earn the after tax profit describedabove?c.) Calculate the operating leverage before applying any of theoptions: What is the contribution margin in Total? What is theoperating income in total? what is the operating leveragefactor?d.) Calculate the break even point in units after applyingOption 1: What is the new fixed cost in total? What is the newcontribution margin per unit? What is the new break even point inunits?e.) Calculate the operating leverage after applying Option 1:What is the new contribution margin in Total? What is the newoperating income in total? what is the new operating leveragefactor?f.) Calculate the break even point in units after applyingOption 2: What is the new fixed cost in total? What is the newcontribution margin per unit? What is the new break even point inunits?g.) Calculate the operating leverage after applying Option 2:What is the new contribution margin in Total? What is the newoperating income in total? what is the new operating leveragefactor?