Question

# Last month when Holiday Creations, Inc., sold 39,000 units, total sales were \$296,000, total variable expenses...

Last month when Holiday Creations, Inc., sold 39,000 units, total sales were \$296,000, total variable expenses were \$248,640, and fixed expenses were \$37,300.

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 total sales by \$1,800? (Do not round intermediate calculations.)

 Total Per unit (total / 39,000) Sales \$296,000 \$7.5897 Less: Variable expense (\$248,640) (\$6.3754) Contribution margin \$47,360 \$1.2143 Fixed expenses \$37,300 Net Operating Income \$10,060

Contribution margin ratio = (Contribution Margin / Sales) *100

Contribution margin ratio = (\$47,360 / \$296,000) *100 = 16%

Contribution margin ratio = 16%

b) If Total sales increase by \$1,800 then Net operating income is

Sales (New) = \$296,000 + \$1,800 = \$297.800

Contribution margin = sales * Contribution margin ratio = \$297,800 *16% = \$47,648

Contribution Margin = \$47,648

Less Fixed cost = \$37,300

Net Operating Income = \$10,348

Change in Net operating Income = \$10,348 - \$10,060 = \$288

Increase in net operating income due to increase in sales by \$1,800 = \$288