1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
KiRa [710]
3 years ago
8

Canton Corp. produces a part using an expensive proprietary machine that can only be leased. The leasing company offers two cont

racts. The first (unit-rate lease) is one where Canton would pay $4 per unit produced, regardless of the number of units. The second lease option (flat-rate lease) is one where Canton would pay $60,000 per month, regardless of the number produced. The lease will run one year and the lease option chosen cannot be changed during the lease. All other lease terms are the same.
The part sells for $40 per unit and unit variable cost (excluding any machine lease costs) are $20. Monthly fixed costs (excluding any machine lease costs) are $200,000.


a. What is the monthly break-even level assuming:

1. The unit-rate lease?
2. The flat-rate lease?
b. At what volume would the operating profit be the same regardless of the lease option chosen?

c. Assume monthly volume of 20,000 units. What is the operating leverage assuming:

1. The unit-rate lease?
2. The flat-rate lease?
d. Assume monthly volume of 20,000 units. What is the margin of safety percentage assuming:

1. The unit-rate lease?
2. The flat-rate lease?
Business
1 answer:
Brut [27]3 years ago
5 0

Answer:

Explanation:

a)

1. Unit rate lease

Unit Contribution margin = Unit Selling price – Unit Variable cost

= 40 - 24 =  $16

Break even point (units) = Fixed cost/Contribution margin per unit

= 200,000/16  = 12,500

2. Flat rate lease

Unit Contribution margin = Unit Selling price – Unit Variable cost

= 40 - 20  = $20

Break even point (units) = Fixed cost/Contribution margin per unit

= 260,000/20  = 13,000

b.)

Let at X units produced profit margin is same under both the lease options

40X - 24X - 200,000 = 40X - 20X - 260,000

16X - 200,000 = 20X - 260,000

4X = 60,000

X = 15,000

If 15,000 units are produced, profit margin will be same under both the lease options.

c)

1. Unit rate lease

Contribution margin income statement

Sales (20,000 x 40)  800,000

Variable cost (20,000 x 24)  - 480,000

Contribution margin  320,000

Fixed cost  - 200,000

Operating income  120,000

Operating leverage = Contribution margin/Operating income

= 320,000/120,000  = 2.67

2. Flat rate lease

Contribution margin income statement

Sales (20,000 x 40)  800,000

Variable cost (20,000 x 20)  - 400,000

Contribution margin  400,000

Fixed cost  - 260,000

Operating income  140,000

Operating leverage = Contribution margin/Operating income

= 400,000/140,000  = 2.86

d)

1. Unit rate lease

Margin of safety = Actual sales - Break even sales

= 20,000 x 40 - 12,500 x 40

= 800,000 - 500,000

= $300,000

Margin of safety (%) = Margin of safety/Actual sales

= 300,000/800,000  = 37.5%

2. Flat rate lease

Margin of safety = Actual sales - Break even sales

= 20,000 x 40 - 13,000 x 40

= 800,000 - 520,000

= $280,000

Margin of safety (%) = Margin of safety/Actual sales

= 280,000/800,000  

= 35%

You might be interested in
Suppose that all 75 employees of a company received a raise of $150 per month? How would this affect the mean salary of all empl
Svetlanka [38]

Answer:

Mean Salary of all employees will be increase by $150.

Explanation:

$150 raise of all 75 employees will be averaged and result in the $150 increase in the mean of all employees salary.

Suppose:

The Sum of all Employees salary = $1,500,000

The Mean of all Employees salary = $100,000 / 75

The Mean of all Employees salary = $20,000

The Sum of all Employees salary after raise = $1,500,000 + ( 75 x 150 )

The Sum of all Employees salary after raise = $1,511,250

The Mean of all Employees salary after raise = $1,511,250 / 75

The Mean of all Employees salary after raise = $20,150

Hence Proved that Mean Salary of all employees will be increase by $150.

7 0
2 years ago
Calculate the presentvalue of $5,000 received five years from today if your investments pay a. 6 percent compounded annually b.
kaheart [24]

Answer:

Given:

Amount = $5000

Tenure = 5 years.

Future value = Present value\times (1+r)^{n}

where

n is number of periods

r is rate per period.

(a) 6% compounded annually.

Interest is compounded annually

No of periods in 5 years = 5

Future value = 5000(1+0.06)^{5} = 5000 × 1.33823 = $6691.15

(b) 8% compounded annually

Interest is compounded annually

No of periods in 5 years = 5

Future value =5000(1+0.08)^{5} = 5000×1.46933 = 7346.65

(c) 10% compounded annually

Interest is compounded annually

No of periods in 5 years = 5  

Future value = 5000(1+0.10)^{5} = 5000×1.61051 = $8052.55

(d) 10% compounded semiannually

Interest is compounded semiannually

No of periods in 5 years is 5*2 = 10

Rate per period = 10÷2 = 5%

Future value =5000(1+0.05)^{10} = 5000×1.62889 = $8144.45

(e) 10% compounded quarterly

Interest is compounded annually

∴No of periods in 5 years = 5×4 = 20

Rate per period = 10÷4 = 2.5

Future value = 5000(1+0.025)^{20} = 5000×1.63862 = $8193.10

5 0
2 years ago
When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted
zysi [14]

Answer:

B

Explanation:

When using the indirect method to prepare the operating section of a statement of cash flows , the gain on sale of land will be deducted from the net income as it has already been included in the net income as the gain on the sales of the land , which was a non cash recognition in the course of the business.

Decrease in receivable means that there was an inflow of cash as some receivables had paid their debts , thus it is added.

The amortization is a non cash expenses that had been deducted which will need to be added back to the net income for the purpose of cash flow.

5 0
3 years ago
If you had $500 to invest, what questions would you have as you decide how to invest your money?
solmaris [256]

Answer:

20,000

Explanation:

that's the answer thank you and stay safe and take care!!!

4 0
2 years ago
Why is mobile banking considered riskier than online banking?
egoroff_w [7]
Because mobile banking means you are using smartphones or other devices . Online banking is <span>a method of banking in which transactions are conducted electronically via the Internet . So if you doing mobile banking people can steal your bank information</span>
6 0
3 years ago
Read 2 more answers
Other questions:
  • The following forecast constitutes the demand for relay switches. John Smith, the production planner, has assembled the followin
    10·1 answer
  • You are the brand manager for a new line of ready-to-drink coffee line from Pepsi cola. Which opinion leaders or reference group
    7·1 answer
  • One way service businesses communicate a higher level of service quality to their customers is by having their employees be clea
    8·1 answer
  • A client is admitted to an acute care facility after an episode of status epilepticus. After the client is stabilized, which fac
    8·1 answer
  • Loraine is a shareholder of Taley Corp. She would like to inspect and copy the company's minute book, accounting records, and sh
    5·2 answers
  • A closed-end fund starts the year with a net asset value of $18.00. By year-end, NAV equals $18.40. At the beginning of the year
    13·1 answer
  • What is 1087 in Roman numerals​
    12·1 answer
  • Which of the following should you NOT do to protect yourself from exposure to bloodborne pathogens?
    11·1 answer
  • Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of oper
    7·1 answer
  • Which of the following is a benefit of insurance?.
    14·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!