Question

Last month when Holiday Creations, Inc., sold 44,000 units, total sales were $297,000, total variable expenses were $213,840, and fixed expenses were $35,700. Required: 1. What is the company's contribution margin (CM) ratio? 2. What is the estimated change in the company's net operating income if it can increase total sales by $2,800? (Do not round intermediate calculations.) 1. Contribution margin ratio 2. Estimated change in net operating income

Answer 1

Solution:- Holiday Creations, Inc. Information Given No. of Units sold = 44000 units Total Soler - $297,000 Total variable Expenses a $213,840 Fixed Expenses = $ 35,700 1. Calculation of contribution margin company :- Retio of Contribution margin Ratio = Total sales - Total variable expenses Total sale x 100 - 297000 - 213,840 x100 297000 83,160 x 100 297000 100 Sales = 28% calculation of neet operating Case 297,000 Less- Variable (213,840) cost Contribution margin Less - Fixed cost (35700) meet operating $47,460 Income Income in present & per unit 6.75 (4.86) $ 1.89

Now there * Estimated choinge in the company'r weet Operating Income If it can increase total sales by $2,800 w there is increase in saler so new Sales will be = $ 297000+- 12800 -$299800 lotal variable cost will be the same because Units are the Same - $213840 fixed cost - $35700 Met operating Income in Mow Code: sales 299,800 Leds- Varuble (213,840) Contribution = $85967 margin = $85960 less Fixed cost (35,700) neet operating $50260 Income Estimated change in met operating Income will be = 50260 -47460 = $ 2800 Increuse in wet opereiding Income. 1. Contribution margin Rautio = 28% 2. Estimated choinge in Met operating Income - $ 2,800