Homework Answers
| 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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