Question

Carla Vista Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $43 throughout the country to loyal alumni of over 3,800 schools. Carla Vista’s variable costs are 41% of sales; fixed costs are $118,000 per month.

(a1)

Correct answer iconYour answer is correct.

Calculate contribution margin ratio. (Round ratio to 2 percentage places, e.g. 0.38 = 38%.)

Contribution margin ratio

%

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Attempts: 2 of 12 used

(a2)

Correct answer iconYour answer is correct.

What is Carla Vista’s annual breakeven point in sales dollars? (Use the rounded contribution margin ratio calcuated in the previous part to compute breakeven sales.)

Breakeven sales

$

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Attempts: 1 of 12 used

(b)

Correct answer iconYour answer is correct.

Carla Vista currently sells 126,000 blankets per year. If sales volume were to increase by 15%, by how much would operating income increase? (Round answer to 0 decimal places, e.g. 5,275.)

Operating income

$

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Attempts: 1 of 12 used

(c)

• Your Answer
• Correct Answer

Incorrect answer iconYour answer is incorrect.

Assume that variable costs increase to 46% of the current sales price and fixed costs increase by $11,800 per month. If Carla Vista were to raise its sales price by 12% to cover these new costs, what would be the new annual breakeven point in sales dollars? (Round sales price to 2 decimal places, e.g. 52.75 and final answer to 0 decimal places, e.g. 5,275.)

Breakeven sales

$

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Solution

Assistance Used

New variable cost:		0.46 × $43	=	$19.78 per unit
New fixed expenses:		$1,416,000 + ($11,800 × 12 months)	=	$1,557,600
New sales price:		$43 × 1.12	=	$48.16 per unit

Sales – VC – FC	=	$0
$48.16x - $19.78x - $1,557,600	=	$0
$28.38x	=	$1,557,600
x	=	54,884 blankets
54,884 blankets × $48.16	=	$2,643,213

  

Attempts: 12 of 12 used

(d)

Incorrect answer iconYour answer is incorrect.

Assume that variable costs increase to 46% of the current sales price and fixed costs increase by $11,800 per month. If Carla Vista were to raise its sales price 12% to cover these new costs, but the number of blankets sold were to drop by 7%, what would be the new annual operating income? (Round sales price to 2 decimal places, e.g. 52.75 and final answer to 0 decimal places, e.g. 5,275.)

The new annual operating income

Answer 1

Solutions are provided for incorrect answers.

(c)

Sales price = $43 + 12% = $48.16

Variable cost = $43 X 46% = $19.78

Fixed cost = ($118,000 + $11,800) X 12 = $1,557,600

Breakeven point in sales dollars:

Let the units sold be S

= [($48.16 - $19.78) X S] = $1,557,600 X $48.16

= $2,643,200

(d)

Sales price = $43 + 12% = $48.16

Variable cost = $43 X 46% = $19.78

Fixed cost = ($118,000 + $11,800) X 12 = $1,557,600

Units sold = 126,000 - 7% = 117,180

New annual operating income:

= [($48.16 - $19.78) X 117,180] - $1,557,600

= $1,767,968