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

Answer with working notes is given below

Q.No.1 Sales Units Sales Variable cost Contribution Fixed Cost Net Operating Income 10,100 $353,500 $202,000 $151,500 $135,000 $16,500 per unit $35.00 $20.00 $15.00 Sales Units Sales Variable cost Contribution Fixed Cost Net Profit 9,900 $346,500 $198,000 $148,500 $135,000 $13,500 per unit $35.00 $20.00 $15.00 Sales Units Sales Variable cost Contribution Fixed Cost Net Profit 9,000 $315,000 $180,000 $135,000 $135,000 per unit $35.00 $20.00 $15.00 Q.No.2 Contribution Margin Ratio Sales Variable Cost Contribution Margin Contribution Margin Ratio (Contribution/Sales )% $200,000 $120,000 $80,000 40.00% Per Unit $4.00 B $2.40 $1.60 A A/B 2 Sales Variable Cost Contribution Margin Fixed Cost Net Operating Income Existing $200,000 $120,000 $80,000 $50,000 $30,000 New $201,000 $120,600 $80,400 $50,000 Change $30,400 $400 Change in Operating Income $400 Alternatively Increase in Sales X Contribution Margin = $1,000 X 40% = $400 Q.No.3 1 Units Break-even point- units Fixed Cost Contribution per unit $4,200 $3 1,400 $12 Selling price Variable cost Contribution per unit Contribution Margin $31 20% 2 Break even point in Sales dollars = Units X Selling price = 1,400 x $15 = $21,000 Alternatively Fixed Cost Contribution Margin % $4,200 20.00% $21,000 3 Units New Break even point -units Revised Fixed cost Contribution per unit $4,800 $31 1,600 New Break even point-sales dollars Revised Fixed cost $4,800 Contribution Margin % 20.00% $24,000 Revised Fixed cost-$4,200 + $600 Q.No.4 Target profit Fixed Cost Total target $10,000 $50,000 $60,000 Units $60,000 Total target Contribution per unit 1,500 $40 $120B Selling price Variable cost Contribution per unit Contribution Margin $80 $40 A 33.33% A/B $15,000 Target profit Fixed Cost Total target $50,000 $65,000 Units $65,000 Total target Contribution per unit $40 1,625 Dollar Sales (1,625 X $120) $195,000 Alternatively Total Target Contribution Margin % $65,000 33.33% $195,000 Cross checking Per unit Units $120 $80 Sales Variable Cost Contribution Fixed Cost Net Operating Profit 1,500 $180,000 $120,000 $60,000 $50,000 $10,000 1,625 $195,000 $130,000 $65,000 $50,000 $15,000 Above answer confirmed $40