Question

E7-26A (similar to) 18 Question Help Gary's Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of $620,000 and a contribution margin of 85% of revenues. Gary feels like he's in a giant squeeze play: The automotive manufacturers are demanding lower prices, and the steel producers have increased raw material costs. Gary's contribution margin has shrunk to 55% of revenues. The company's monthly operating income, prior to these pressures, was $272,500. Read the requirements. Requirement 1. To maintain this same level of profit, what sales volume in sales revenue) must Gary now achieve? Begin by identifying the formula to compute the sales in units at various levels of operating income using the contribution margin approach = Target sales in dollars i Requirements 1. To maintain this same level of profit, what sales volume (in sales revenue) must Gary now achieve? 2. Gary believes that his monthly sales revenue will only go as high as $1,050,000. He is thinking about moving operations overseas to cut fixed costs. If monthly sales are $1,050,000, by how much will he need to cut fixed costs to maintain his prior profit level of $272,500 per month? Print Done

Answer 1

Monthly fixed expenses Monthly operating icnome Contribution margin New sales to acheve same operating income $ 6,20,000.00 $ 2,72,500.00 55% $ 16,22,727.27 = (620000+272500)/55%