Question

Question 2 A cement manufacturer has supplied the following data: Tons of cement produced and sold.... Sales revenue Variable manufacturing expense....... Fixed manufacturing expense...... Variable selling and administrative expense Fixed selling and administrative expense ..... Net operating income.... 260,000 $1,118,000 $429,000 $288,000 $91,000 $228,000 $82,000 Required: a. What is the company's unit contribution margin? b. What is the company's contribution margin ratio? c. If the company increases its unit sales volume by 3% without increasing its fixed expenses, what will total net operating income be? h (US)

Answer 1

2.

Sales Revenue	$          1,118,000
Less Variable Expenses
Manufacturing Expense	$              429,000
Selling and administrative Expenses	$                91,000
Total Variable Expenses	$              520,000
Contribution Margin	$              598,000
Less Fixed Expenses
Manufacturing Expense	$              288,000
Selling and administrative Expenses	$              228,000
Total Fixed Expenses	$              516,000
Net Operating Income	$                82,000

a. Company's Contribution Margin = $598,000
unit Contribution margin = $598,000 / 260000 = $2.30 per unit

b. Contribution Margin Ratio = Contribution Margin / Sales Revenue
= $598,000 / $1,118,000 = 53.49%

c. Net Operating Income = $598,000 x 1.03 - $516,000 = $99940

3.
Contribution Margin per unit = Selling Price - Variable Cost per unit
= $12 - $8 = $4 per unit

Units to earn target profit = (Fixed Expenses + Target Profit) / Contribution Margin per unit
= ($400000 + $80000) / $4 = 120000 units