1 a) contribution margin ratio = contribution/sales*100
= 460000/1150000*100
= 40%
Break even point in balls = Fixed expenses/contribution per unit
= 318000/10
31800 balls
[Contribution per unit 25 - 15]
b) Degree of operating leverage = contribution/EBIT
= 460000/142000
= 3.239
2) If variable expenses increased by $3
Variable expenses = 15+3 = 18
Contribution margin ratio = (25-18)/25 *100
= 7/25*100
=28%
Break even point in balls = 318000/7
=45428.57
=45429 balls
3) Sales quantity to earn desired profit of $ 142000 = (Fixed cost + desired profit)/contribution per unit
= (318000+142000)/7
= 460000/7
= 65715 balls
4) Variable expenses = 46000*18 = 828000
Contribution margin ratio = 40%
Variable cost ratio = 1 - CM ratio
= 1 - 40%
= 60%
Expected sales = (828000/60) *100
= $1380000
Selling price per unit = 1380000/46000
= $ 30
5) Variable expenses = 15*60% = $9
Fixed expenses = 318000*2 = $636000
New contribution margin ratio = (25-9)/25 *100
= 64%
New break even point in balls = 636000/(25-9)
= 636000/16
= 39750 balls
6 a) Sales quantity to earn a desired profit of $142000 = (Fixed cost+desired profit)/contribution per unit
=( 636000+142000)/16
= 778000/16
= 48625 balls
b) Contribution format Income Statement
Sales (46000*25) | 1150000 |
(-) Variable expenses (46000*9) | (414000) |
Contribution margin | 736000 |
(-)Fixed expenses | (636000) |
Net Operating Income | 100000 |
Degree of operating leverage = contribution/EBIT
= 736000/100000
= 7.36
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