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LenKa [72]
3 years ago
5

Chillmax Company had planned to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes di

rect materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $78,000 (includes fixed factory overhead and fixed selling and administrative expense). Operating income at 3,500 units sold is $58,500. The degree of operating leverage is 2.3. Now Chillmax expects to increase sales by 10% next year.
Required:1. Calculate the margin of safety in terms of the number of units.2. Calculate the margin of safety in terms of sales revenue.
Business
1 answer:
Tema [17]3 years ago
8 0

Answer:

Margin of safety (units)= 1,500 units

Margin of safety (dollars)= $90,000

Explanation:

Giving the following information:

Sales= 3,500 units

Selling price= $60

Unitary variable cost= $21

Total fixed cost equals $78,000

First, we need to calculate the break-even point both in units and dollars:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 78,000/ (60 - 21)

Break-even point in units= 2,000 units

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 78,000/ (39/60)

Break-even point (dollars)= $120,000

Now, we can determine the margin of safety:

Margin of safety= (current sales level - break-even point)

Margin of safety (units)= 3,500  - 2,000= 1,500 units

Margin of safety (dollars)= 210,000 - 120,000= $90,000

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Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $250 million of 8% bonds, dated January 1, on January 1, 2
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Answer:

A. 1-Jan-21

Dr Investment in Bond $250

Cr Cash $228

Cr Discount on bond investment $22

30-Jun-21

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Dr Discount on bond investment $1.40

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Cr Interest revenue $11.47

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C. In Million)

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Dr Fair value adjustment $9.13

Cr Unrealized holding gain or loss - NI $9.13

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a. Preparation of the relevant journal entries on the respective dates.

1-Jan-21

Dr Investment in Bond $250

Cr Cash $228

Cr Discount on bond investment $22

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(Being to record the investment in bond )

30-Jun-21

Dr Cash $10

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Dr Discount on bond investment $1.40

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Cr To Interest revenue $11.40

($228*10%*6/12)

(Being to record revenue recognition for bond interest and discount amortized)

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Dr Cash $10

($250 * 8% * 6/12)

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Cr Interest revenue $11.47

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c. Preparation of any entry necessary to achieve this reporting objective

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Less: Interest received ($20)

Net cash flow from operating activities $208 Outflow

Cash flow from investing activities $0.00

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