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Oullumber Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets r
Assume that variable costs increase to 45% of the current sales price and fixed costs increase by $12,000 per month. If Cullu
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Answer #1
Contribution Margin Ratio
Selling Price per unit ($) 40
Variable Cost(VC) per unit (40% of Sales) $ 16
Therefore, Contribution margin = (Sales - VC) 24
Contribution Margin Ratio = (Contribution Margin / Sales) 60%
Breakeven Sales
Formula = (Fixed Cost / Contribution Margin Ratio)
Fixed cost ($) 120000
Contribution Margin Ratio (from Above) 60%
Therefore, Breakeven Sales ($) 200000
Computation of Increase in operating Income
Particulars Current Increase by 15%
Sales Volume 116000 133400
Selling Price per unit ($) 40 40
Variable Cost(VC) per unit (40% of Sales) $ 16 16
Therefore, Contribution margin = (Sales - VC) 24 24
Total Contribution for entire sales volume 2784000 3201600
Fixed Cost for the year (120000*12) 1440000 1440000
Operating Income = (Contribution - Fixed Cost) 1344000 1761600
Therefore, increase in operating Income ($) 417600
Revised Breakeven Sales
Selling Price per unit ($) (40 + 12%) 44.80
Variable Cost(VC) per unit (45% of current sale price, i.e 40) $ 18.00
Therefore, Contribution margin = (Sales - VC) 26.80
Contribution Margin Ratio = (Contribution Margin / Sales) 59.82%
Fixed cost ($) 132000
Therefore, Breakeven Sales ($) = (Fixed Cost / Contribution Margin Ratio) 220657
Computation of Revised operating Income
Particulars Amount ($)
Sales Volume (116000-7%) 107880
Selling Price per unit ($) 44.80
Variable Cost(VC) per unit (40% of Sales) $ 18.00
Therefore, Contribution margin = (Sales - VC) 26.80
Total Contribution for entire sales volume 2891184
Fixed Cost for the year (132000*12) 1584000
Operating Income = (Contribution - Fixed Cost) 1307184
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