Lawn Master Company, a manufacturer of riding lawn mowers,...

Lawn Master Company, a manufacturer of riding lawn mowers, has a projected income for the coming year as follows: Sales $ 42,000,000 Operating expenses: Variable expenses $ 23,100,000 Fixed expenses 9,450,000 Total expenses 32,550,000 Operating profit $ 9,450,000 Required: 1. Determine the breakeven point in sales dollars. 2. Determine the required sales in dollars to earn a before-tax profit of $10,800,000. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) 3. What is the breakeven point in sales dollars if the variable expenses increases by 11%? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) 1. Breakeven point in sales dollars 2. Required sales in dollars 3. Breakeven point in sales dollars

Transcript

00:01 In the given question for loan master company, in the first part we need to calculate the break given point in dollars.

00:08 First of all, we will be calculating the contribution margin ratio.

00:13 So this step one will be calculation of contribution margin ratio.

00:23 We know that contribution margin ratio is equals to the contribution margin or the contribution earned on the total sales divided by sales times 100.

00:35 Therefore the contribution margin ratio is going to be contribution earned and that will be sales minus variable expenses divided by the sales times hundred it is going to get us the contribution margin ratio in terms of percentage so now we have total sales of 42 million dollars so 42 million will be total sales and the variable expenses is given to be 23 million hundred thousand dollars so this figure divided by the sales that is 42 million dollars times hundred rate is going to get us the contribution margin and that comes to 45 % or in decimal this will be 0 .45.

01:50 So now we have calculated the contribution margin ratio.

01:54 Now next we are going to calculate the break -even point in sales dollar.

02:00 So the break -even point in sales dollar can be calculated with the formula fixed expenses divided by contribution margin ratio.

02:30 Now in the question, the fixed expenses is given to be 9 million.

02:38 $450 ,000 and the contribution margin ratio we have calculated to be 0 .45.

02:48 So upon solving this, we are going to get $21 million break -even sales.

02:59 So this is the break -even sales in dollar.

03:04 So the first part of the question is solved here.

03:07 The break -even point in sales dollar is equal to $21 ,000.

03:13 Here dollars.

03:18 So now in the second part of the question we have to find out the required sales to earn a before tax profit of $10 ,800 ,000.

03:28 So here the required sales to earn before tax profit the amount given to us is $10 ,800 ,000.

03:51 So for this, what we will be doing, we have a formula that is fixed expenses plus the target profit that we want to earn.

04:04 Now this divided by the contribution margin ratio is going to get us the required sales...

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