Part A: Fixed and Variable Cost Stuart Manufacturing produces met

Part A: Fixed and Variable Cost
Stuart Manufacturing produces metal picture frames. The company’s income statements for the last two years are given below:
Last year
This year
Units sold ……………………………………………
50,000
70,000
Sales …………………………………………………..
$800,000
$1,120,000
Cost of goods sold ……………………………….
550,000
710,000
Gross margin ………………………………………
250,000
410,000
Selling and administrative expense ………..
150,000
190,000
Net operating income …………………………..
$100,000
$ 220,000
The company has no beginning or ending inventories.
Required:
a. Estimate the company’s total variable cost per unit and its total fixed costs per year. (Remember that this is a manufacturing firm.)
b. Compute the company’s contribution margin for this year.
Part B: 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.
Required:
a. Given the present situation, compute
1. The break-even sales in kilograms.
2. The break-even sales in dollars.
3. The sales in kilograms that would be required to produce net operating income of $90,000.
4. The margin of safety in dollars.
b. 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.
1. Should the company choose the lease or the royalty plan?
2. Under the royalty plan compute break-even point in kilograms.
3. Under the royalty plan compute break-even point in dollars.
4. Under the royalty plan determine the sales in kilograms that would be required to produce net operating income of $90,000.

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