Answer:
Scenario 1 = Selling Price per unit is $850 per Canoe
Scenario 2 = Sales price and variable cost per unit are increased by 10%
So Revised Sales price = $750 * 110% = $825
Revised Variable cost per unit = $195 * 110% = $214.5
Scenario 3 = Decrease of Fixed cost by 20%
Revised Fixed Cost = $247,500 * 80% = $198,000
Unit Contribution Margin = Selling price per unit - Variable cost per unit
Unit Contribution Margin in Scenario 1 = $850 - $195 = $655 per unit
Unit Contribution Margin in Scenario 2 = $825 - $214.5 = $610.5 per unit
Unit Contribution Margin in Scenario 3 = $750 - $195 = $555 per unit
Contribution Margin ratio = (Contribution Margin per unit / Sale price per unit) * 100
Contribution Margin ratio in Scenario 1 = ($655 / $850) * 100 = 77.05%
Contribution Margin ratio in Scenario 2 = ($610.5 / $825) *100 = 74%
Contribution Margin ratio in Scenario 3 = ($555 / $750) * 100 = 74%
Scenario 1 Raises Sales Price to $850 per Canoe |
Scenario 2 Increases Sales Price and Variable Cost per unit by 10 Percent |
Scenario 3 Decrease Fixed cost by 20 Percent |
|||||
Unit Contribution Margin | $655 per unit | $610.5 per unit | $555 per unit | ||||
Contribution Margin Ratio | 77.05% | 74% | 74% | ||||
Contribution Margin Income Statement | |||||||
A | Sales (Units) | 1,000 | 1,000 | 1,000 | |||
Selling Price per unit | $850 | $825 | $750 | ||||
Less: Variable Cost per unit | ($195) | ($214.5) | ($195) | ||||
B | Contribution Margin Per Unit | $655 | $610.5 | $555 | |||
C | Contribution Margin (A * B) | $655,000 | $610,500 | $555,000 | |||
D | Less: Fixed Cost | ($247,500) | ($247,500) | ($198,000) | |||
E | Net Operating Income ( C - D ) | $407,500 | $363,000 | $357,000 |
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