Problem: Cost-Volume-Profit Analysis
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.
Task:
I. Given the present situation, compute
i. The break-even sales in kilograms.
ii. The break-even sales in dollars.
iii. The sales in kilograms that would be required to produce net operating income of $90,000.
iv. The margin of safety in dollars.
II. 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.
i. Should the company choose the lease or the royalty plan?
ii. Under the royalty plan compute break-even point in kilograms.
iii. Under the royalty plan compute break-even point in dollars.
iv. Under the royalty plan determine the sales in kilograms that would be required to produce net operating income of $90,000.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.