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Peace and Suzy Company

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Problem 1

The Peace Company has the following functional (traditional) income statement for the prior month.
Sales    ($50 X 100,000 units)              $5,000,000

Cost of goods sold                  
            Direct materials $1,200,000     
            Direct labor      $950,000        
            Variable factory overhead         $600,000        
            Fixed factory overhead $850,000         $3,600,000
Gross profit                                                       $1,400,000
Selling and administrative expense                                
            Variable           $250,000        
            Fixed    $120,000                                      $370,000
Operating income                                                   $1,030,000
There were no beginning and ending inventories.                       
a. Calculate the contribution margin per unit.
b. Calculate the contribution margin ratio.
c. What is the break-even point in units?
d. What is the amount of sales in dollars needed to obtain a before-tax profit of $40,000?

Problem 2
Suzy Manufacturing has estimated monthly sales of 18,000 units for $48 per unit. Variable costs include manufacturing costs of $27 and distribution costs of $9 per unit. Fixed costs are $60,000 per month.

Determine each of the following values.
  1. Unit contribution margin
  2. Monthly break-even unit sales volume
  3. Before-tax monthly profit
  4. Monthly margin of safety in units
  5. Create a contribution margin-based income statement. 

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