Question

Blossom Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $50 throughout the country to loyal alumni of over 3,500 schools. Blossom's variable costs are 40% of sales; fixed costs are $118,000 per month (21) Your answer is correct. Calculate contribution margin ratio. (Round ratio to 2 percentage places, e.g. 0.38 - 38%.) Contribution margin ratio 60 % eTextbook and Media Attempts: 1 of 12 used (a21

Answer 1

Required a1:

Contribution margin ratio = [(Sales - Variable cost) / Sales] * 100

= [$50 - ($50*40%) / $50] * 100

= [($50 - $20) / $50] * 100

= 60%

Required a2:

	At current level	At 15% increase
Sales	$5,150,000 (103,000*$50)	$5,922,500 (103,000+15%)*$50)
(-) Variable cost	-$2,060,000 (5,150,000*40%)	-$2,369,000 (5,922,500*40%)
Contribution margin	$3,090,000	$3,553,500
(-) Fixed cost (118,000 * 12)	-$1,416,000	-$1,416,000
Operating income	$1,674,000	$2,137,500

Operating income will increase by $463,500 (2,137,500 - 1,674,000).