Question

Sandhill Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $47 throughout the country to loyal alumni of over 2.900 schools. Sandhill's variable costs are 41% of sales: fixed costs are $118,000 per month Assume that variable costs increase to 47% of the current sales price and fixed costs increase by $13.600 per month. If Sandhill were to raise its sales price 10% to cover these new costs, but the number of blankets sold were to drop by 7 what would be the new annual operating income? (Round sales price to 2 decimal places, es. 52.75 and final answer too decimal places, eg. 5,275.)

Answer 1

Old figures :

Sale price = 47$

VC = 41%

FC = 118,000$

No. of customers = 2900 schools (Even though in the question it has been given that it is sold to over 2900 schools, we have assumed the number of schools/customers to be 2900 since without this it is not possible to solve the question)

New figures :

Sale Price = 47$ +10%*47$ = 51.7$

VC = 47% * 51.7$ = 24.3$

Fixed Cost = 118,000$ + 13,600$ = 131,600$

No. of blankets sold = 2900 - 2900*7% = 2697 blankets

Calculation of Annual operating Income

Contribution = SP - VC = 51.7$ - 24.3$ = 27.4$

Profit/Operating Income = Total contribution - Fixed Costs

Operating Income = (2697 * 27.4) - 131,600

Operating Income = (57,702 $)