Management Accounting

Assignment #5

1. Aladin Company Manufactures small battery that is used in clocks, toys and some other
electronic devices. The last month’s income statement of Aladin is given below:

Total Per Unit

Sales (30,000 batteries) $300,000 $10
Less variable expenses $180,000 $6
Contribution Margin $120,000 $4
Fixed expenses $100,000
Net operating income $20,000

Required:
Prepare Aladin's new income statement under each of the following conditions:
1. The sales colume increase by 15%.
2. The selling price decreases by 20% per unit, and the sales volume increase by 30%.
3. The selling price increases by 50% per unit, fixed expenses increase by $20,000 and the sales volume
decreases by 5%.
4. Variable expenses increases by 20% per unit, the selling price increase by 12%, and the sales volume
decrease by 10%.

2. TLK Ltd. manufactures small size fans to be used in load shedding areas. Each fan has a
rechargeable battery and a built in charging circuit. TLK sells a fan for $120. The annual sale is
30,000 fans. Variable and fixed cost data is given below:

Variable expenses $84 per fan

Fixed expenses $900,000 per year

Required:

A. Prepare contribution margin income statement and compute the degree of operating leverage.
B. Next year the sales are expected to increase by 7,500 fans. Compute (a) the expected
percentage increase in net operating income (b) expected increase in net operating income and
(c) expected total net operating income for the next year.

3. Contribution Margin Income Statement of a single product company

 Total Per unit
Sales $1,200,000 $80
Less variable expenses $840, 000 $56
Contribution Margin 360,000 $24
Less fixed expenses 300,000
Net Operating income $60,000
Required:
1. Calculate break-even point in units and dollars.
2. What is the contribution margin at break-even point?
3. Compute the number of units to be sold to earn a profit of $36,000.
4. Compute the margin of safety using original data.
5. Compute CM ratio. Compute the expected increase in monthly net operating if sales increase by
$160,000 and fixed expenses do not change.