Question

9:44 EMA Chapter 6 The Effect of Chang... 1) Whirly Corporation's contribution format income statement for the most recent month is shown below: Total Porn Sales (0.000 unts Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 100 units? 2. What would be the revised net operating income per month if the sales volume decreases by 100 units? 3. What would be the revised net operating income per month if the sales volume is 9,000 units? 2) Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total variable expenses were $120,000, and fixed expenses were $65,000. 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 $1,000?

Answer 1

1)1. Operating income if sales increase by 100 units

	Total	per unit
Sales ( 10,100)	353,500	35
Variable cost	202,000	20
Contribution margin	151,500	15
Fixed cost	135,000
Net operating income	16,500

1)2. Operating income if sales decrease by 100 units

	Total	per unit
Sales (9,900 units)	346,500	35
Variable Expenses	198,000	20
Contribution margin	148,500	15
Fixed expenses	135,000
Net operating income	13,500

1)3. If sales volume is 9,000 units

	Total	per unit
Sales (9,000 units)	315,000	35
Variable Expenses	180,000	20
Contribution margin	135,000	15
Fixed cost	135,000
Net operating income	0

2)1. Contribution margin ratio=( sales - variable Expenses)×100/sales

(200,000 - 120,000)×100/200,000

80,000×100/200,000

=40%

2)2.actual contribution margin statement

	Total	per unit
Sales ( 50,000 units)	200,000	4
Variable Expenses	120,000	2.4
Contribution margin	80,000	1.6
Fixed expenses	65,000
Net operating income	15,000

Estimated change if sales increase by 1,000

	Total	per unit
Sales(50,250 units)	201,000	4
Variable Expenses	120,600	2.4
Contribution margin	80,400	1.6
Fixed expenses	65,000
Net operating income	15,400

Operating income increase by 400

3)1. Breakeven point in unit= fixed cost/(sales price - variable Expenses per unit)

= 4,200/(15-12)

=4,200/3

= 1400 units

3)2. Company breakeven point in dollars= breakeven point in unit× selling price

= 1400 units × 15

=$21,000

3)3. New breakeven point when Fixed Expenses increase by $600

= (4,200+600)/3 per unit

=1,600 units

New breakeven point in dollars sales= 1,600× 15=$24,000

4)1. Unit sales to attain target profit= (fixed expenses+ profit)/CM per unit

= (50,000+10,000)/(120 - 80)

= 60,000/40 per unit

=1,500 units

4)2. Dollar sales to attain a target profit = (fixed expenses+ profit)/CM ratio

=(50,000+ 15,000)/33.33%

=$195,000

W/n : contribution margin ratio= (120-80)/120

=33.33%