olution 1:
CM ratio = Contribution margin / Sales = $1,560,000 / $3,120,000 =
50%
Solution 2:
Break even Point in dollar sales = Fixed costs / contribution
margin ratio = $180,000 / 50% = $360,000
Solution 3:
If sales increases by $55,000, then increase in net operating
income = $43,000 * 50% = $21,500
Solution 4a:
Degree of operating leverage based on last year sales =
contribution margin / net operating income
= $1,560,000 / $1,380,000 = 1.13
Solution 4b:
% increase in net operating income = % increase in sales * Degree
of operating leverage
= 16% * 1.1304347= 18.09%
Solution 5a:
New selling price per unit = $120 * 89% = $106.80
New Fixed costs = $180,000 + $61,000 = $241,000
New sales volume = ($3,120,000/$120)*125% = 32500 units
Solution 5b:
Decrease to net operating income = $1280000 -$1380000 = -
$100,000
Solution 6:
If sales commission increased by $1.80 per unit then new
contribution margin per unit = $120 - $60 - $1.90 = $58.10 per
unit
New sales volume = 26000*125% = 32500 units
Target operating income = $1,380,000
Maximum fixed costs = Total contribution margin - target operating
income
= (32500 * $58.10) - $1380,000 = $508,250
Existing fixed costs = $180,000
The amount by which advertising can be increase is =
$508,250 - $180,000 = $328,250
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