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amiechap12
17.03.2020 •
Business
Canton Corp. produces a part using an expensive proprietary machine that can only be leased. The leasing company offers two contracts. 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?
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Ответ:
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%
Ответ:
C. $69,000
Explanation:
Computation of the cash paid for dividends during Year 2
First step is to calculate the difference in Retained earnings for Year 2 and Year 1
Retained earnings =$688,000-$582,000
Difference in retained earnings =$106,000
Second step is to calculate for the cash paid for dividends during Year 2
Using this formula
Cash paid dividend = Year 2 Net income- Retained earnings difference
Let plug in the formula
Cash paid dividend=$175,000-$106,000
Cash paid dividend =$69,000
Therefore the cash paid for dividends during Year 2 will be $69,000