Blue Dolphin Industries manufactures one product. The company's sales and expenses for February were as follows:
The sale price of the unit is $ 200
Production cost per unit is $ 50
General unit cost is $ 25
Other production costs are $ 10,300
Sale and management cost $ 15,200
1. Based on the information above, prepare a composite income statement for blue dolphin industries if the current level of output is 200.
2. What is the break-even point in the units sold?
3. What is the breakeven point in dollars sold?
4. How many units would Blue Dolphin Industries need to sell to achieve a target profit of $ 75,000
5. What is the safety margin at the production level?
1. To prepare a composite income statement for Blue Dolphin Industries, you need to calculate the total sales, total expenses, and net income.
Sales revenue can be calculated by multiplying the sale price per unit by the number of units sold:
Sales Revenue = Sale price per unit * Number of units sold
In this case, the sale price per unit is $200, and the number of units sold is 200.
Sales Revenue = $200 * 200 = $40,000
Total production costs include the production cost per unit and other production costs:
Total Production Costs = Production cost per unit * Number of units sold + Other production costs
In this case, the production cost per unit is $50 and the number of units sold is 200.
Total Production Costs = $50 * 200 + $10,300 = $20,300
Total expenses include the general unit cost and the sale and management cost:
Total Expenses = General unit cost * Number of units sold + Sale and management cost
In this case, the general unit cost is $25 and the number of units sold is 200.
Total Expenses = $25 * 200 + $15,200 = $20,200
Net Income can be calculated by subtracting the total expenses from the sales revenue:
Net Income = Sales Revenue - Total Expenses
Net Income = $40,000 - $20,200 = $19,800
Therefore, the composite income statement for Blue Dolphin Industries with a current level of output of 200 units would be as follows:
Sales Revenue: $40,000
Total Production Costs: $20,300
Total Expenses: $20,200
Net Income: $19,800
2. The break-even point in units sold is the point at which the company's total revenue equals its total expenses, resulting in zero net income. To calculate the break-even point, divide the total fixed costs by the contribution margin per unit.
Total Fixed Costs include the other production costs, sale and management costs, and general unit costs:
Total Fixed Costs = Other production costs + Sale and management costs + General unit costs
In this case, the other production costs are $10,300, sale and management costs are $15,200, and general unit costs are $25.
Total Fixed Costs = $10,300 + $15,200 + $25 = $25,525
The contribution margin per unit can be calculated by subtracting the variable costs per unit from the sale price per unit:
Contribution Margin per unit = Sale price per unit - Variable costs per unit
In this case, the sale price per unit is $200, and the variable costs per unit include the production cost per unit and the general unit cost:
Contribution Margin per unit = $200 - ($50 + $25) = $125
The break-even point in units sold can be calculated by dividing the total fixed costs by the contribution margin per unit:
Break-even point in units sold = Total Fixed Costs / Contribution Margin per unit
Break-even point in units sold = $25,525 / $125 = 204.2 (approx.)
Therefore, the break-even point in units sold is approximately 204 units.
3. The break-even point in dollars sold is the point at which the company's total revenue equals its total expenses, resulting in zero net income. To calculate the break-even point, multiply the break-even point in units sold by the sale price per unit.
Break-even point in dollars sold = Break-even point in units sold * Sale price per unit
Break-even point in dollars sold = 204 * $200 = $40,800
Therefore, the break-even point in dollars sold is $40,800.
4. To calculate the number of units Blue Dolphin Industries would need to sell to achieve a target profit of $75,000, you need to consider the fixed costs, target profit, and the contribution margin per unit.
Total fixed costs remain the same as before, $25,525.
The target profit would be added to the fixed costs to determine the necessary total revenue:
Target Total Revenue = Total Fixed Costs + Target Profit
Target Total Revenue = $25,525 + $75,000 = $100,525
The contribution margin per unit remains the same, $125.
The number of units needed to achieve the target profit can be calculated by dividing the target total revenue by the contribution margin per unit:
Required units = Target Total Revenue / Contribution Margin per unit
Required units = $100,525 / $125 = 804.2 (approx.)
Therefore, Blue Dolphin Industries would need to sell approximately 804 units to achieve a target profit of $75,000.
5. The safety margin at the production level is the difference between the actual level of output and the break-even point in units sold, expressed as a percentage.
Safety Margin = ((Actual level of output - Break-even point) / Actual level of output) * 100
In this case, the actual level of output is 200 units, and the break-even point is approximately 204 units.
Safety Margin = ((200 - 204) / 200) * 100
Safety Margin = (-4 / 200) * 100
Safety Margin = -2%
Therefore, the safety margin at the production level is -2%. This means that the company is operating below the break-even point and incurs a loss.