Question

Cullumber Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $100 throughout the country to loyal alumni of over 3,300 schools. Cullumber's variable costs are 40% of sales, fixed costs are $116,000 per month.

Answer 1

Given: Sale Price :- $100; Variable Cost :- 40% of sales (i.e 40%*100 = $40);

Fixed Cost :- $116,000 pm;

1)Required :- Break even point in sales

Contribution margin :- Sales - Varible Costs

  =$100-$40

   =$60

Contribution Margin Ratio :- (Contribution/ Sales) *100

= ($60/$100) * 100

= 60%

Fixed Cost annually= $116,000 pm * 12

= $1,392,000

Annual Break Even Point in sales Dollars :- Fixed Cost / Contribution Margin Ratio

= $1,392,000/ 60%

= $2,320,000

2) Given Sales - 139,000 units

Required :- Increase in operating income if sales increases by 15%

Sales (in units) on increase by 15% = 139,000*15% = 20,850 units

Operating Income is increased by = Increase in sales * Contribution

= 20,850 * $60 ( as compued above )

= $1,251,000

( fixed cost is not considered assuming it remains same, even on increase of sales volume)