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# Darringer Products manufactures recreational equipment. One of the company's products, a skateboard, sells for \$42. The skateboards are manufactured...

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Darringer Products manufactures recreational equipment. One of the company’s products, a skateboard,
sells for \$42.00. The skateboards are manufactured in an antiquated plant that relies heavily on direct
labor workers. Thus, variable costs are high, totaling \$25.20 per skateboard of which 60% is direct labor
cost.
Over the past year the company sold 44,000 skateboards, with the following operating results: Sales (44,000
skateboards)
Variable expenses \$ 1,108,800 Contribution margin
Fixed expenses
Net operating income 1,848,000 739,200
470,400
\$ 268,800 Management is anxious to maintain and perhaps even improve its present level of income from the
skateboards.
Required:
1-a. Compute the CM ratio and the break-even point in skateboards.
Contribution margin
Unit sales to break-even
point %
skateboards 1-b. Compute the degree of operating leverage at last year's level of sales. (Round your answer to 2
decimal places.)
Degree of operating leverage
2. Due to an increase in labor rates, the company estimates that variable costs will increase by \$3.36
per skateboard next year. If this change takes place and the selling price per skateboard remains
constant at \$42.00, what will be the new CM ratio and the new break-even point in skateboards?
Contribution margin
Unit sales to break-even
point %
skateboards 3. Refer to the data in (2) above. If the expected change in variable costs takes place, how many
skateboards will have to be sold next year to earn the same net operating income, \$268,800, as last
year?
Number of skateboards
4. Refer again to the data in (2) above. The president has decided that the company may have to raise
the selling price of its skateboards. If Darringer Products wants to maintain the same CM ratio as last
year,what selling price per skateboard must it charge next year to cover the increased labor
Selling price \$ 5. Refer to the original data. The company is considering the construction of a new, automated plant.
The new plant would slash variable costs by 40%, but it would cause fixed costs to increase by 99%.
If the new plant is built, what would be the company’s new CM ratio and new break-even point in
skateboards?
Contribution margin
Unit sales to break-even
point %
skateboards 6. Refer to the data in (5) above.
a. If the new plant is built, how many skateboards will have to be sold next year to earn the same net
operating income, \$268,800, as last year?
Number of skateboards
b-1. Assume that the new plant is constructed and that next year the company manufactures and
sells 44,000 skateboards (the same number as sold last year). Prepare a contribution format
income statement. (Input all amounts as positive values except losses which should be
indicated by minus sign.)
Contribution Income Statement.
\$ \$ b-2. Compute the degree of operating leverage. (Round your answer to 2 decimal places.)
Degree of operating
leverage

Textra Sports, Inc., produces high-quality sports equipment. The company's Racket Division
manufactures three tennis rackets— the Standard, the Deluxe, and the Pro—that are widely used in
amateur play. Selected information on the rackets is given below: Selling price per racket
Variable expenses per racket:
Production
Selling (5% of selling price) Standard
\$47.00 Deluxe
\$ 65.00 Pro
\$86.00 \$18.80
\$ 2.35 \$ 22.75
\$ 3.25 \$25.80
\$ 4.30 All sales are made through the company's own retail outlets. The Racket Division has the following
fixed costs:
Per Month
Fixed
production
costs
expense
salaries \$ 107,000
106,000
57,000 Total \$ 270,000 Sales, in units, over the past two months have been as follows: April
May Standard
3,000
8,000 Deluxe
2,000
2,000 Pro
6,000
3,000 Total
11,000
13,000 Required:
1-a. Prepare contribution format income statements for April. (Round the &quot;Total percent&quot; answers to
one decimal place. Input all amounts as positive values except losses which should be
indicated by minus sign.)
Standard
Amount
(Click to select) Deluxe
% Amount \$ \$ \$ \$ Variable expenses:
(Click to select)
(Click to select) Total variable expenses
(Click to select) Fixed expenses: % Total fixed expenses
(Click to select) 1-b.Prepare contribution format income statements for May. (Round the &quot;Total percent&quot; answers to
one decimal place. Input all amounts as positive values except losses which should be
indicated by minus sign.)
Standard
Amount
(Click to select) Deluxe
% Amount \$ \$ \$ \$ Variable expenses:
(Click to select)
(Click to select) Total variable expenses
(Click to select) Fixed expenses: Total fixed expenses
(Click to select) 3. Compute the Racket Division's break-even point in dollar sales for April. (Round your intermediate
calculations to 3 decimal places and final answer to the nearest dollar.)
Break-even point in dollar sales \$ 4. Would the break-even point be higher or lower with May's sales mix than with April's sales mix?
Higher
Lower % 5. Assume that sales of the Standard racket increase by \$27,000. What would be the effect on net
operating income? What would be the effect if Pro racket sales increased by \$27,000? Do not prepare
income statements; use the incremental analysis approach in determining your answer. (Input all
amounts as positive values.)
Tennis Rackets Effect Standard Net operating income
by Pro Net operating income
by Amounts (Click to select) \$
(Click to select) \$

Windy City Company, a wholesale distributor, has been operating for only a few months. The company
sells three products—sinks, mirrors, and vanities. Budgeted sales by product and in total for the coming
month are shown below:
Product
Sinks
Percentage
of total sales
Sales
Variable
expenses
Contribution
margin
Fixed
expenses Mirrors
48% \$ 20% 307,200
92,160 30% 215,040 \$ 100% \$ 70% 128,000
102,400 80% 25,600 \$ 100% 20% Net
operating
income Dollar sales to break-even = Fixed expenses
CM ratio = \$224,120
0.52 = \$431,000 As shown by these data, net operating income is budgeted at \$108,680 for the month, and breakeven sales at \$431,000.
Assume that actual sales for the month total \$640,000 as planned. Actual sales by product are: sinks,
\$204,800; mirrors, \$256,000; and vanities, \$179,200.
Required:
1. Prepare a contribution format income statement for the month based on actual sales data. (Input all
amounts as positive values except losses which should be indicated by minus sign. Round
% Percentage of total sales
(Click to select) \$ (Click to select) (Click to select) Product
Mirrors
%
% \$ %
\$ % (Click to select) (Click to select) 2. Compute the break-even point in sales dollars for the month, based on your actual data. \$ Break-even point in sales dollars \$

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Darringer Products manufactures recreational equipment. One of the company’s products, a skateboard,
sells for \$42.00. The skateboards are manufactured in an antiquated plant that relies heavily...

## This question was asked on Sep 26, 2013 and answered on Sep 29, 2013.

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