Question

Last month when Holiday Creations, Inc., sold 44,000 units, total sales were $282,000, total variable expenses were $203,040, and fixed expenses were $37,300.

Required:

1. What is the company’s contribution margin (CM) ratio?

2. What is the estimated change in the company’s net operating income if it can increase total sales by $2,400? (Do not round intermediate calculations.)

Answer 1

1) Contribution ($) = Sales-Variable cost

=282,000-203,040

=$78,960

Contribution margin (CM) ratio= Contribution/Sales

=78,960/282,000

=0.28

2)  

Add/less	Particulars	Amount (Exsisting sales)	Amount (When sales increased by $2,400)
	Sales	2,82,000	2,84,400
Less	Variable cost	2,03,040	2,04,768
	Contribution	78,960	79,632
Less	Fixed costs	37,300	37,300
	Net opreating income	41,660	42,332
	%Net opreating income to sales	15%	15%

Estimated Net opreating income when sales increased by$2,400=$42,332