Homework Answers
16)
| particulars | amount($) |
| sales revenue | 1500000 |
| less:variable costs | |
| direct materials | 180000 |
| direct labour | 200000 |
| variable factory overhead | 70000 |
| sales commission | 50000 |
| contribution margin | 1000000 |
| less:fixed costs | |
| factory overhead | 140000 |
| administrative expenses | 200000 |
| advertising expenses | 35000 |
| operating profit(EBIT) | 625000 |
17) operting leverage=1.6 times
calculation:-
contribution/EBIT=1000000/625000=1.6 times
18) Total net income that the company wil earn if sales increased by 30%=$925000.
calculation:-
we know that degree of operating leverage=% change in EBIT/% change in output
here operating leverage=1.6,% change in output=30% so
1.6=% change in EBIT/%/.3 and % change in EBIT=1.6x.3=.48
increase in EBIT=625000X.48=300000
new EBIT=300000+625000=925000.
19)contribution margin per unit=total contribution/sales in units=$1000000/10000=$100.
calculation-
total contribution=sales-variable costs=1500000-180000-200000-70000-50000=$1000000
sales in units=10000 units.
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