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.
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