Solution 1:
Contribution margin ratio = Contribution margin / sales = $400,000 / $1,000,000 = 40%
Contribution margin per unit = $25 - $15 = $10 per unit
Breakeven sales units = Fixed cost / contribution margin per unit = $265,000 / 10 = 26,500 units
Degree of operating leverage = Contribution margin / Net operating income = $400,000 / $135,000 = 2.96
Solution 2:
New variable cost per unit = $15 + $3 = $18 per ball
new contribution margin per unit = $25 - $18 = $7 per unit
New contribution margin ratio = $7 / $25 =28%
New breakeven point in balls = $265,000 / $7 = 37,857 units
Solution 3:
Nos of balls to be sold to earn target income = (Fixed cost + Target profit) / contribution margin per unit
= ($265,000 + $135,000) / $7 = 57,143 units
Solution 4:
Variable cost per unit = $18 per unit
Required contribution margin ratio = 40%
required variable cost ratio = 60%
New selling price per unit = $18 / 60% = $30 per unit
Solution 5:
New variable cost per unit = $15 * 60% = $9 per unit
New contribution margin per unit = 25- $9 = $16 per unit
New fixed costs = $265,000*2 = $530,000
New CM ratio = $16/$25 = 64%
New break even point = $530,000/ $16 = 33,125 units
Solution 6a:
Nos of balls to be sold to earn target income = (Fixed cost + Target profit) / contribution margin per unit
= ($530,000 + $135,000) / $16 = 41,563 units
Solution 6b:
Northwood Company | |
Contribution margin income statement | |
Particulars | Amount |
Sales (40000*$25) | $1,000,000 |
Variable cost (40000*$9) | $360,000 |
Contribution margin (40000*$16) | $640,000 |
Fixed expenses | $530,000 |
Net Operating income | $110,000 |
Degree of operating leverage (Contribution / Net Operating income) | 5.82 |
No Courant uiz Sarved Help s Sales (40,000 balls) Variable expenses Contribution margin Fixed expenses Net...
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Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 40,000 of these balls, with the following results: Sales (40,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $1,000,000 600,000 400.000 265,000 $ 135,000 Required: 1. Compute...
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