Question 1 - Biscayne's Rent-A-Ride rents two models of automobiles: the standard and the deluxe. Information follows:
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Standard
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Deluxe
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Rental price per day
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$58.00
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$66.00
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Variable cost per day
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24.50
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29.20
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Biscayne's total fixed cost is $25,500.00 per month.
Required:
1. Determine Biscayne's new break-even point in each of the following independent scenarios:
a. Product mix is 40/60.
b. Sales price increases on both models by 15 percent. (Assume a product mix of 50/50.)
c. Fixed costs increase by $5,000. (Assume a product mix of 50/50.)
d. Variable costs increase by 20 percent. (Assume a product mix of 50/50.)
Question 2 - Tiago makes three models of camera lens. Its product mix and contribution margin per unit follow:
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Percentage of Unit sales
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Contribution Margin per unit
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Lens A
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25%
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$49
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Lens B
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43
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41
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Lens C
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32
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54
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Required:
1. Determine the weighted-average contribution margin per unit.
2. Determine the number of units of each product that Tiago must sell to break even if fixed costs are $191,000.
3. Determine how many units of each product must be sold to generate a profit of $76,000.
Question 3 - Erin Shelton, lnc., wants to earn a target profit of $960,000 this year. The company's fixed costs are expected to be $1,320,000 and its variable costs are expected to be 40 percent of sales. Erin Shelton, lnc., earned $860,000 in profit last year.
Required:
1. Calculate break-even sales for Erin Shelton, Inc.
2. Prepare a contribution margin income statement on the basis break-even sales.
3. Calculate the required sales to meet the target profit of $960,000.
4. Prepare a contribution margin income statement based on sales required to earn a target profit of $960,000.
5. When the company earns $960,000 of net income, what is its margin of safety and margin of safety as a percentage of sales?
Question 4 - Ramada Company produces one golf cart model. A partially complete table of company costs follows:
Required:
1. Complete the table.
2. Ramada sells its carts for $1,850 each. Prepare a contribution margin income statement for each of the three production levels given in the table.
3. Calculate Ramada's break-even point in number of units and in sales revenue.
4. Assume Ramada sold 200 carts last year. Without performing any calculations, determine whether Ramada earned a profit last year.
5. Calculate the number of carts that Ramada must sell to earn $85,500 profit.
6. Calculate Ramada's degree of operating leverage if it sells 650 carts.
7. Using the degree of operating leverage, calculate the change in Ramada's profit if sales are 20 percent less than expected.