Question
In: Accounting
Last month when Holiday Creations, Inc., sold 43,000 units, total sales were $172,000, total variable expenses...
Last month when Holiday Creations, Inc., sold 43,000 units, total sales were $172,000, total variable expenses were $130,720, and fixed expenses were $37,200.
Required: 1. What is the company’s contribution margin (CM) ratio?
2. What is the estimated change in the company’s net operating income if it can increase sales volume by 450 units and total sales by $1,800? (Do not round intermediate calculations.)
Solutions
Expert Solution
(1) Formula for contribution margin ratio is:
Contribution margin ratio = Sales - Variable expenses / Sales
putting the values in the above formula, we get,
Contribution margin ratio = ($172000 - $130720) / $172000
Contribution margin ratio = 0.24 or 24%
(2) First we will calculate last month's net operating income as per below:
Net operating income = Contribution margin - Fixed expenses
or
Net operating income = Sales - Variable expenses - Fixed expenses
Net operating income = $172000 - $130720 - $37200
Net operating income = $4080
Now, we will calculate the net operating income when sales increase by 450 units or by $1800:
New sales = $172000 + $1800 = $173800
Contribution margin = Sales * Contribution margin ratio
Contribution margin = $173800 * 24% = $41712
Now,
Net operating income = Contribution margin - Fixed expenses
Net operating income = $41712 - $37200 = $4512
Change in net operating income = $4512 - $4080 = $432
ekkarill92 answered 2 years agoRelated Solutions
Last month when Holiday Creations, Inc., sold 44,000 units, total sales were $176,000, total variable expenses...
Last month when Holiday Creations, Inc., sold 44,000 units,
total sales were $176,000, total variable expenses were $128,480,
and fixed expenses were $39,300.
Required:
1. What is the company’s contribution margin (CM) ratio?
2. What is the estimated change in the company’s net operating
income if it can increase sales volume by 600 units and total sales
by $2,400? (Do not round intermediate
calculations.)
Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total variable expenses...
Last month when Holiday Creations, Inc., sold 50,000 units,
total sales were $200,000, total variable expenses were $120,000,
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Required:
1. What is the company’s contribution margin (CM) ratio?
2. What is the estimated change in the company’s net operating
income if it can increase sales volume by 250 units and total sales
by $1,000?
Last month when Holiday Creations, Inc., sold 37,000 units, total sales were $301,000, total variable expenses...
Last month when Holiday Creations, Inc., sold 37,000 units,
total sales were $301,000, total variable expenses were $219,730,
and fixed expenses were $36,400.
Required:
1. What is the company’s contribution margin (CM) ratio?
2. What is the estimated change in the company’s net operating
income if it can increase total sales by $1,700? (Do not
round intermediate calculations.)
Last month when Holiday Creations, Inc., sold 35,000 units, total sales were $291,000, total variable expenses...
Last month when Holiday Creations, Inc., sold 35,000 units,
total sales were $291,000, total variable expenses were $247,350,
and fixed expenses were $38,800.
Required:
1. What is the company’s contribution margin (CM) ratio?
2. What is the estimated change in the company’s net operating
income if it can increase total sales by $1,700? (Do not
round intermediate calculations.)
Last month when Holiday Creations, Inc., sold 36,000 units, total sales were $289,000, total variable expenses...
Last month when Holiday Creations, Inc., sold 36,000 units,
total sales were $289,000, total variable expenses were $239,870,
and fixed expenses were $36,500.
Required:
1.
What is the company’s contribution margin (CM) ratio?
2.
Estimate the change in the company’s net operating income if it
were to increase its total sales by $1,700.
1). Contribution Margin is: a). Sales - Total Variable expenses b). Sales - Total variable expenses...
1). Contribution Margin is:
a). Sales - Total Variable expenses b). Sales - Total variable
expenses - Total fixed expenses c). Sales revenue per unit x Sales
quantity d). Variable expense per unit x Sales quantity
2). When preparing segmented income statements fixed expense are
separated into the following categories:
a). Traceable and common b).Fixed and Variable c).Direct and
indirect d).Product and period
3).A Co. reported: Sales $125000; Contribution margin $62000;
Total fixed expenses $42000; Common fixed expenses $15000. How...
Morton Company’s contribution format income statement for last month is given below: Sales (43,000 units ×...
Morton Company’s contribution format income statement for last
month is given below:
Sales (43,000 units × $23 per unit)
$
989,000
Variable expenses
692,300
Contribution margin
296,700
Fixed expenses
237,360
Net operating income
$
59,340
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general economic
conditions. The company has a large amount of unused capacity and
is studying ways of improving profits....
Morton Company’s contribution format income statement for last month is given below: Sales (43,000 units ×...
Morton Company’s contribution format income statement for last
month is given below: Sales (43,000 units × $29 per unit) $
1,247,000 Variable expenses 872,900 Contribution margin 374,100
Fixed expenses 299,280 Net operating income $ 74,820 The industry
in which Morton Company operates is quite sensitive to cyclical
movements in the economy. Thus, profits vary considerably from year
to year according to general economic conditions. The company has a
large amount of unused capacity and is studying ways of improving
profits....
Morton Company’s contribution format income statement for last month is given below: Sales (43,000 units ×...
Morton Company’s contribution format income statement for last
month is given below:
Sales (43,000
units × $25 per unit)
$
1,075,000
Variable
expenses
752,500
Contribution
margin
322,500
Fixed
expenses
258,000
Net operating
income
$
64,500
The industry in which Morton Company operates is quite sensitive
to cyclical movements in the economy. Thus, profits vary
considerably from year to year according to general economic
conditions. The company has a large amount of unused capacity and
is studying ways of improving profits....
Pearson Company sold 5,000 units for $50 each. Variable costs were $28 per unit and total fixed expenses were $20,350.
__________________________________________________________________________
Pearson Company sold 5,000 units for $50 each. Variable costs were $28 per unit and total fixed expenses were $20,350.
What is Pearson's total contribution margin?
What is the breakeven in terms of units for Pearson?
What is Pearson's net income?
__________________________________________________________________________
Ava’s Creations sells two products. A and B. The weighted average per unit is $40 and Ava’s fixed costs are $24,800. The sales mix is 30% for A and 70% for B.
How many units of...
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