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

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 ago

Next > < Previous

Related 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, and fixed expenses were $65,000. 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...

Subjects