Question

Last month when Holiday Creations, Inc., sold 40,000 units, total sales were $295,000, total variable expenses...

Last month when Holiday Creations, Inc., sold 40,000 units, total sales were $295,000, total variable expenses were $215,350, and fixed expenses were $39,300.


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 $2,200.

     

Homework Answers

Answer #1

1. Calculate contribution margin ratio :

Contribution margin = 295000-215350 = 79650

Contribution margin ratio = 79650*100/295000 = 27%

2. Estimate the change in the company’s net operating income if it were to increase its total sales by $2,200.

Present Proposed
Sales 295000 297200
Contribution margin 79650 80244
Less : Fixed expenses (39300) (39300)
Net operating income 40350 40944

Company's net income increase by (40944-40350) = $594

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