Question

Jitterbug Incorporated manufactures and sells a single product. The company’s contribution format income statement projection for its next year of operations is:

Jitterbug Incorporated: Upcoming year projections
		Per Unit
Sales Revenue: 40,000 units sold	$800,000	$20
Less: Variable Expenses	-640,000	-16
Contribution Margin	160,000	$ 4
Less: Fixed Expenses	-80,000
Net Operating Income	$ 80,000

1. Does the company have a good cost structure if sales should exceed its projections by 10%? Explain.

2. Does the company have a good cost structure if sales are 8% less than what it has projected? Explain.

Answer 1

Ans.1	New sales units = 40000 + (40000*10%) =	44000
	Particulars	Amount
	Sales (44000*20)	880000
	Variable expenses (44000*16)	704000
	Contribution margin	176000
	Fixed expenses	80000
	Net operating income	96000
	Yes, the company have a good cost structure after increase in sales by
	10% as it would increase its net operating income by $16000 (96000-80000).
Ans.1	New sales units = 40000 - (40000*8%) =	36800
	Particulars	Amount
	Sales (36800*20)	736000
	Variable expenses (36800*16)	588800
	Contribution margin	147200
	Fixed expenses	80000
	Net operating income	67200
	No, the company would not have a good cost structure after decrease in sales by
	8% as it would decrease its net operating income by $12800 (80000 - 67200).