Question

Javed EXIT Check 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? pped 1. Contribution margin ratio 2. Estimated change in net operating income ences

Answer 1

1. Contribution margin ratio [(Sales - Variable costs) / Sales] = [($200,000 - $120,000) / $200,000]	40	%
2. Estimated change in the net operating income = Change in sales * Contribution margin ratio = $1,000 * 40 %	$400