Scenario 1 raises sales price to $650 |
Scenario 2 increases sales price and variable cost per unit by 10 percent |
Scenario 3 decreases fixed cost by 20 percent |
|
Unit contribution margin (sales price - variable cost per unit) |
$445 | $379.5 | $345 |
Contribution margin ratio (Unit contribution margin/sales price) |
68.46% | 62.73% | 62.73% |
Contribution margin income statement |
Sales | $650,000 | $605,000 | $550,000 |
Less: Variable cost | $205,000 | $225,500 | $205,000 |
Contribution margin | $445,000 | $379,500 | $345,000 |
Less: Fixed cost | $148,500 | $148,500 | $118,800 |
Net operatinng income | $296,500 | $231,000 | $226,200 |
Working notes:
Scenario 1 - Raises sales price to $650
Scenario 2 - Increase sales price and variable cost per unit by 10 percent
Sales price per unit = $550
Add: increase sales price 10% = $55
Sales price per unit = $605
Variable cost per unit = $205
Add: increase variable cost 10% = $20.5
Variable cost per unit = $225.5
Scenario 3 - Decrease fixed cost by 20%
Fixed cost = $148,500
Less: Decrease fixed cost by 20% = $29,700
Fixed cost = $118,800
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