Question

CHC Salmon Processing manufactures and sells canned salmon. Variable cost per can amounts to $9 and the selling price of each can is $33. Total annual fixed costs amount to $20,233,846. Sales are estimated to amount to 1,370,000 cans of salmon.

Do not enter dollar signs or commas in the input boxes.
Round dollar answers to the nearest whole number and round BE units up to the nearest whole number, unless otherwise indicated.

a) Calculate the following values.
Gross Sales: $Answer
Total Variable Costs: $Answer
Contribution Margin: $Answer
Operating Income: $Answer

b) If the company sells according to their estimates, what is the degree of operating leverage? The break-even point (in units)?
Round the degree of operating leverage to 2 decimal places.

Degree of operating leverage: Answer
Break-even Point (units): Answer

c) If the company increases the sales volume (cans) by 34%, by what percentage will operating income increase? By what dollar amount will operating income increase? Use the degree of operating leverage.
Round the percentage increase to 2 decimal places.

Percentage Increase: Answer%
Dollar Increase: $Answer

d) If the company spends $22,000 as additional advertising expense (fixed cost), sales volume will increase by 7%. Determine the new operating leverage and the new break-even point in units.
Round the degree of operating leverage to 2 decimal places.

Degree of operating leverage: Answer
Break-even point (units): Answer

Answer 1

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CHC Salmon
Answer a	Amount $	Note
Sell price per unit	33.00	A
Units sold	1,370,000.00	B
Gross Sales	$ 45,210,000.00	C=A/B
Variable cost per unit	9.00	D
Units sold	1,370,000.00	See B
Total Variable cost	$ 12,330,000.00	E=D*B
Gross Sales	45,210,000.00	See C
Less: Variable costs	12,330,000.00	See E
Contribution margin	32,880,000.00	F=C-E
Less: Fixed costs	20,233,846.00	G
Operating Income	12,646,154.00	H
Answer b	Amount $
Sell Price	33.00	See A
Less: Variable cost per unit	9.00	See B
Contribution margin per unit	24.00	I
Fixed costs	20,233,846.00	See G
Break-even units	843,077.00	J=G/I
Operating leverage	2.60	J=F/H
Answer c	Amount $
Increase in sales by	34%	K
Increase in operating income by	88.40%	L=K*J
Increase in operating income by	11,179,200.00	M=H*L
Answer d
Current units sold	1,370,000.00	See B
Increase in sales by 7%	95,900.00	N=B*7%
Revised units sold	1,465,900.00	O=B+N
Contribution margin per unit	24.00	See I
Total Contribution margin	$ 35,181,600.00	P=O*I
Less: Fixed costs
Existing Fixed costs	20,233,846.00
Advertising expense	22,000.00
Total Fixed costs	20,255,846.00	Q
Operating Income	14,925,754.00	R=P-Q
Break-even units	843,994.00	S=Q/I
Operating leverage	2.36	T=P/R