Blackmon Manufacturing Company makes a product that it sells for $50 per unit

Problem 11-28 Determining the Break-even Point and Preparing a Contribution Margin Income Statement

Blackmon Manufacturing Company makes a product that it sells for $50 per unit. The company incurs variable manufacturing costs of $14 per unit. Variable selling expenses are $6 per unit, annual fixed manufacturing costs are $189,000, and fixed selling and administrative costs are $141,000 per year.

a. Determine the break even point in units and dollars
b. Confirm your results by preparing a contribution margin income statement for the break-even sales volume.

Check:
a. 11,000 units
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2-41 (Multiple Breakeven Points) In September 2006, Capetini Capacitor Company sold capacitors to its distributors for 250.00 per capacitor

2-41 (Multiple Breakeven Points) In September 2006, Capetini Capacitor Company sold capacitors to its distributors for 250.00 per capacitor. The sales level of 3,000 capacitors a month was less than the single-shift capacity of 4,400 capacitors at its plant located in San Diego. Variable production costs were $100.00mper capacitor, and fixed production costs were 200,000 per month. In addition, variable selling and distribution support costs are $20.00 per capacitor, and fixed selling and distribution support costs are $62500.00 per month. At the suggestion of the marketing department, In October 2006 Capetini reduced the sales price to $200.00and increased the monthly advertising budget by $17,500. Sales are expected to increase to 6,800 capacitors per month. If the demand exceeds the single-shift capacity of 4,400 capacitors, the plant needs to be operated in two shifts. Two shift operation will increase monthly fixed production costs to 310,000.
a) Determine the contribution margin per capital in September 2006
b) Determine the sales level in number of capacitors at which the profit-to-share ratio would be 10% in September 2006.
c) Determine the two breakeven points for October 2006
d) Determine the sales level in number of capacitors at which the profit-to-sales ratio in October is the same as the actual profit-to-share ratio in September. Is there more than one possible sales level at which the equality would occur?
Click here for the solution: 2-41 (Multiple Breakeven Points) In September 2006, Capetini Capacitor Company sold capacitors to its distributors for 250.00 per capacitor

(Research and Application 5-34: Benetton Group) The questions in this exercise are based on the Benetton Group, a company headquartered in Italy and known in the United States

Research and Application 5-34

Benetton Group

The questions in this exercise are based on the Benetton Group, a company headquartered in Italy and known in the United States primarily for one of its brands of fashion apparel?United Colors of Benetton. To answer the questions, you will need to download the Benetton Group's 2004 Annual Report at www.benetton.com/investors. You do not need to print this document to answer the questions.

Required:
1. How do the formats of the income statements shown on pages 33 and 50 of Benetton's annual report differ from one another (disregard everything beneath the line titled “income from operations”)? Which expenses shown on page 50 appear to have been reclassified as variable selling costs on page 33?
2. Why do you think cost of sales is included in the computation of contribution margin on page 33?
3. Perform two separate computations
of Benetton's break-even point in euros. For the first computation, use data from 2003. For the second computation, use data from 2004. Why do the numbers that you computed differ from one another?
4. What sales volume would have been necessary in 2004 for Benetton to attain a target income from operations of €300 million?
5. Compute Benetton's margin of safety using data from 2003 and 2004. Why do your answers for the two years differ from one another?
6. What is Benetton's degree of operating leverage in 2004? If Benetton's sales in 2004 had been 6% higher than what is shown in the annual report, what income from operations would the company have earned? What percentage increase in income from operations does this represent?
7. What income from operations would Benetton have earned in 2004 if it had invested €10 million additional euros in advertising and promotions and realized a 3% increase in sales? As an alternative, what income from operations would Benetton have earned if it not only invested €10 million additional euros in advertising and promotions but also raised its sales commission rate to 6% of sales, thereby generating a 5% increase in sales? Which of these two scenarios would have been preferable for Benetton?
8. Assume that total sales in 2004 remained unchanged at €1,686 million (as shown on pages 33 and 50); however, the Casual sector sales were €1,554 million, the Sportswear and Equipment sector sales were €45million, and the Manufacturing and Other sector sales were €87 million. What income from operations would Benetton have earned with this sales mix? (Hint: look at pages 36 and 37 of the annual report.) Why is the income from operations under this scenario different from what is shown in the annual report?

 Click here for the solution: (Research and Application 5-34: Benetton Group)