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question 1- Nice Corporation produces and sells a single product. Data concerning that product appear below:...

question 1- Nice Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 200 100 % Variable expenses 40 20 % Contribution margin $ 160 80 % Fixed expenses are $120,000 per month. The company is currently selling 1,300 units per month.

Required: Management is considering using a new component that would increase the unit variable cost by $49. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected?

question 2 - Jelly Inc.'s contribution margin ratio is 62% and its fixed monthly expenses are $50,500. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $143,000?

question 3 -

The contribution margin ratio of Candle Corporation's only product is 60%. The company's monthly fixed expense is $455,700 and the company's monthly target profit is $41,700.

Required:

Determine the dollar sales to attain the company's target profit.

Solutions

Expert Solution

Question 1 :
At present
Sales [ 1300 * 200 ] 260000
(-) Variable costs [ 1300 * 40 ] 52000
Contribution margin 208000
(-) Fixed costs 120000
Net operating income 88000
After change
Sales [ (1300+500) * 200 ] 360000
(-) Variable costs [ (1300+500) * (40+49) ] 160200
Contribution margin 199800
(-) Fixed costs 120000
Net operating income 79800
Net operating income after change 79800
(-) Net operating income at present 88000
Decrease in net operating income -8200
The net operating income will decrease by $8,200
Question 2 :
Sales 143000
(*) Contribution margin ratio 62%
Contribution margin 88660
(-) Fixed expenses 50500
Net operating income 38160
Question 3 :
Dollar sales to attain the company's target profit = ( Fixed expenses + Target profit ) / Contribution margin ratio = ( 455700 + 41700 ) / 60% = 829000

ekkarill92 answered 2 years ago
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