Question

In March, Mitchell Limited had sales of $313,500 (57,000 units), total variable expenses of $222,585, and total fixed expenses of $66,700.

Required:

1. What is the company’s CM ratio?

2. Calculate the break-even level of sales in dollars.

3. Estimate the change in the company’s operating income if it increased its total sales by $11,000. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

Answer-1)- The company’s CM ratio = 29%.

Explanation- Contribution margin ratio = (Contribution margin/Total sales)*100

= ($90915/$313500)*100

= 29%

Where- Contribution margin = $313500 - $222585

= $90915

2)- The break-even level sales in dollars = $230000.

Explanation- Break-even level sales in dollars = Fixed costs/ Contribution margin ratio

= $66700/29%

= $230000

3)- The change in the company’s operating income if it increased its total sales by $11000 = Operating income increase by $3190.

Explanation- Increase in operating income if sales increase by $11000 = $11000 *29%

= $3190