Question

Kramer Enterprises reports year-end information as follows: Sales in units: 304,000 Sales: $1,824,000 Variable Costs: 1,216,000...

  1. Kramer Enterprises reports year-end information as follows:

Sales in units: 304,000

Sales: $1,824,000

Variable Costs: 1,216,000

Contribution Margin: 608,000

Fixed Costs 494,000

Operating Income: $114,000

Kramer is developing next year’s budget. Next year, the company is planning to decrease selling prices by 10%, and as a result, expects an increase in sales volume of 15%. All other operating expenses are expected to remain constant.

Calculate Kramer’s expected operating income for next year

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Answer #1

Total sales = $1,824,000

Number of units sold = 304,000

Selling price per unit = Total sales / Number of units sold

= 1,824,000/304,000

= $6

Total variable cost = $1,216,000

Variable cost per unit = Total variable cost/ Number of units sold

= 1,216,000/304,000

= $4

For next year

Decrease in selling price per unit = 10%

Net selling price per unit = 6 - 6 x 10%

= 6- 0.6

= $5.4

Increase in sales = 15%

New sales = 304,000+ 304,000 x 15%

= 349,600

Income Statement
Sales (349,600 x 5.4) 1,887,840
Variable cost (349,600 x 4) -1,398,400
Contribution margin 489,440
Fixed costs -494,000
Net operating loss -$4,560

Kramer’s expected operating loss for next year -$4,560.

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