Walton Modems, Inc. makes modem cards that are used in notebook computers. The company completed the following transactions during year 1. All purchases and sales were made with cash.
1. Acquired $930,000 of cash from the owners.
2. Purchased $360,000 of manufacturing equipment. The equipment has a $48,000 salvage value and a four-year useful life.
3. The company started and completed 6,800 modems. Direct materials purchased and used amounted to $58 per unit.
4. Direct labor costs amounted to $43 per unit.
5. The cost of manufacturing supplies used amounted to $22 per unit.
6. The company paid $68,000 to rent the manufacturing facility.
7. Walton sold all 6,800 units at a cash price of $210 per unit.
8. The sales staff was paid a $15.00 per unit sales commission.
9. Paid $57,000 to purchase equipment for administrative offices. The equipment was expected to have a $4,800 salvage value and a three-year useful life.
10. Administrative expenses consisting of office rental and salaries amounted to $93,640.
Required:
1. Use the following partially completed form to prepare an income statement using the contribution margin format.
2. Determine the break-even point in units and in dollars.
3. Assume that next year's sales are budgeted to be the same as the current year's sales. Determine the margin of safety expressed as a percentage.
Use the following partially completed form to prepare an income statement using the contribution margin format.
WALTON MODEMS, INC.
Income Statement
For the Year Ended December 31, Year 1
Sales revenue: $1,428,000
Variable costs:
Total variable costs: $489,600
Contribution margin:
Fixed costs:
Total fixed costs:
Net income: $232,560