Group case 2
Part B: Cost-Volume-Profit Analysis
Belli-Pitt, Inc, produces a single product. The results of the company’s operations for a typical month are
summarized in contribution format as follows:
Sales…………………………….. $540,000
Variable expenses………….. 360,000
Contribution margin ………. 180,000
Fixed expenses ……………… 120,000
Net operating income …….. $ 60,000
The company produced and sold 120,000 kilograms of product during the month. There were no
beginning or ending inventories.
Required:
a. Given the present situation, compute
1. The break-even sales in kilograms.
2. The break-even sales in dollars.
3. The sales in kilograms that would be required to produce net operating income of
$90,000.
4. The margin of safety in dollars.
b. An important part of processing is performed by a machine that is currently being leased for
$20,000 per month. Belli-Pitt has been offered an arrangement whereby it would pay $0.10
royalty per kilogram processed by the machine rather than the monthly lease.
1. Should the company choose the lease or the royalty plan?
2. Under the royalty plan compute break-even point in kilograms.
3. Under the royalty plan compute break-even point in dollars.
4. Under the royalty plan determine the sales in kilograms that would be required to
produce net operating income of $90,000.
