a. What is the total contribution margin?
b. What is the unit contribution margin?
c. What is the contribution margin ratio?
d. If sales increase by 20,000 units, by how much will profits increase?
b. What unit sales would be required to earn a target profit of $200,000?
c. Assume they achieve the level of sales required in part b, what is the degree of operating leverage?
e. If sales decrease by 30% from that level, by what percentage will profits decrease?
a. Contirbution margin Per unit = Sales revenue - Variable COsts per unit
= 2 - 0.30 - 0.50 - 0.30 = 0.90 per unit
Total Contribution margin = Total Sales units * Contribution margin per unit = 100000*0.90 = 90000
b. Unit Contribution margin = 0.90 per unit (Computed above)
c. Contribution margin ratio = Contribution Margin / Sales = 0.90/2 = 45%
d. Profits will be increase by the contribution amount = 20000*0.90 = 18000
a. Breakeven point in units = Fixed Cost / Contribution per unit = 75000/25 = 3000 units
b. Required sales unit = (Desired Profit + Fixed Cost) / Contribution per untit = 275000 / 25 = 11000 units
c. Degree of Operating leverage = Contribution marhin / Operating income = 11000*25 / 200000 = 1.375
d. Revised sales units = 11000*0.70 = 7700 units
Profit @ 7700 units = 7700*25-75000 = 117500
% Change in the profit = (200000-117500)/200000 = 41.25% decrease
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