Posted: August 13th, 2016
There are two Experts I’ve had the pleasure working with (1 is you) and both of you explain these problems in a way I can understand them. So thank you for that!!
1. Adam Company offers two products. At present, the following represents the usual results of a month’s operations:
Product K Product L
Per Unit Per Unit Combined
Sales revenue $120,000 $1.20 $80,000 $0.80 $200,000
Variable expenses 60,000 0.60 60,000 0.60 120,000
Contribution margin $60,000 $0.60 20,000 $0.20 80,000
Fixed expenses 50,000
Net operating income $30,000
A) Find the break-even point in dollars.
B) Find the margin of safety in dollars.
C) The company is considering decreasing product K’s unit sales to 80,000 and increasing product L’s unit sales to 180,000, leaving unchanged the selling price per unit, variable expense per unit, and total fixed
expenses. Would you advise adopting this plan?
D) Refer to (C) above. Under the new plan, find the break-even point in dollars.
E) Under the new plan in (C) above, find the margin of safety in dollars.
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