1.
Sales | $ 400,000 |
Variable Expense | $ 160,000 |
Contribution | $ 240,000 |
Contribution Margin | 60% |
2.
Sales | $ 400,000 |
Variable Expense | $ 160,000 |
Contribution | $ 240,000 |
Contribution Margin | 60% |
Fixed Cost | $ 180,000 |
Breakeven (Fixed Cost / Contribution Margin | $ 300,000 |
3.
Earlier | New | Increase | |
Sales | $ 400,000 | $ 475,000 | $ 75,000 |
Variable Expense | $ 160,000 | $ 190,000 | |
Contribution | $ 240,000 | $ 285,000 | |
Contribution Margin | 60% | 60% | |
Fixed Cost | $ 180,000 | $ 180,000 | |
Profit | $ 60,000 | $ 105,000 | $ 45,000 |
4.a. Operating leverage = Contribution / Net profit = 2,40,000 / 60,000 = 4x
4.b. Change in operating income = 4*20% = 80%
5.
Earlier | New | |
Sales | $ 400,000 | $ 450,000 |
Variable Expense | $ 160,000 | $ 180,000 |
Contribution | $ 240,000 | $ 270,000 |
Contribution Margin | 60% | 60% |
Fixed Cost | $ 180,000 | $ 210,000 |
Profit | $ 60,000 | $ 60,000 |
Req 1 | Product CM Ratio | 60.00% | |||
Note 1: | |||||
CM Ratio = Contribution margin / sales | |||||
Contribution margin | 240,000 | ||||
Divided by sales | 400,000 | ||||
CM Ratio | 60.00% | ||||
Req 2 | Break Even points in sales dollar | 300,000 | |||
Note 2: | |||||
Break Even points in sales dollar = Fixed expense/CM Ratio | |||||
Fixed expenses | 180,000 | ||||
Divided by CM Ratio | 60.00% | ||||
Break Even points in sales dollar | 300,000 | ||||
Req 3 | Net Operating Income Increase by | 900,000 | |||
Note 3: | |||||
Effect on income = change in sales * CM Ratio | |||||
Increase in sales | 1,500,000 | ||||
Multiply by CM Ratio | 60% | ||||
Net Operating Income Increase by | 900,000 | ||||
Req 4-a | Degree of Operating Leverage | 4.00 | |||
Note 4: | |||||
Operating Leverage = Contribution margin/ Net Income | |||||
Contribution Margin | 240,000 | ||||
Divided by Net Income | 60,000 | ||||
Degree of Operating Leverage | 4.00 | ||||
Req 4-b | Net Operating Income(NOI) increase by | 80.00% | |||
Note 5: | |||||
Change in NOI = %age change in sales * operating leverage | |||||
%age change in sales | 20% | ||||
Multiply by operating leverage | 4.00 | ||||
Net Operating Income(NOI) increase by | 80.00% | ||||
Req 5-a | Contribution Income statement | ||||
Last Year | Proposed | ||||
20,000 | Units | 25,000 | Units | ||
Total | Per Unit | Total | Per Unit | ||
Sales | 400,000 | 20.00 | 450,000 | 18.00 | |
Less: Variable expense | 160,000 | 8.00 | 200,000 | 8.00 | |
Contribution margin | 240,000 | 12.00 | 250,000 | 10.00 | |
Fixed expenses | 180,000 | 210,000 | |||
Net Income | 60,000 | 40,000 | |||
Req 5-b | Net Operating Income Decrease by | (20,000) |
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