The Ornate Company Produces a Single Product and Has Total

question 71

Essay

The Ornate Company produces a single product and has total costs ranging from $321,875 (at 20,000 units) to $966,875 (at 80,000 units). Sales volume in 2020 was 32,000, and operating income was $45,125. Ornate's product is highly specialized; therefore, no units are kept in inventory.
Required:
(a.) Determine the cost equation for Ornate's costs.
(b.) Prepare a contribution margin income statement for 2020 including separate columns for total dollars, per unit dollars, and percentages.
(c.) Determine the break-even point (in units and in dollars).

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Definitions:

Cash Coverage Ratio

The Cash Coverage Ratio measures a company's ability to cover its debt obligations with its operating cash flow, thus indicating its financial health and liquidity.

Depreciation Expense

The allocated amount of an asset's cost expensed over its useful life to represent wear and tear, obsolescence, or age.

EBIT

Earnings Before Interest and Taxes captures a business's earning power by including all costs except those related to interest and taxes.

Times Interest Earned

A metric that measures a company's ability to meet its debt obligations by comparing its income before interest and taxes to its interest expenses.