Question

Question No.6: [3+4+5+31 A. The Dog Hut hot dog stand expects the following operating results for next year Sales Tk. 2, 80,000 Net operating income.... Tl 21,000 Contribution margin ratio 70% What is Dos Hut's break-even point next year in sales dollars B. The following information relates to Zinc Corporation for last year Sales Tk. 5,00,000 Net operating income Tk 25,000 Degree of operating leverage Sales at Zinc are expected to be Tic. 600,000 next year. Assuming no change in cost structure. Find the net operating income for next year. The following information pertains to Nova Co's cost-volume-profit relationships Breakeven point in units sold Variable expenses per unit. Tk. 500 Total fixed experises Tk 1. 50,000 How much will be contributed to net operating income by the 1,001st unit sold? D. Last year, variable expenses were 60% of total sales and fixed expenses were 10% of total sales. If the company increases its selling prices by 10%, but if faced expenses, variable costs per unit and unit sales remain unchanged, what would be the effect of the increase in selling price on the company's total contribution margin? 1,000 Page 3 of 3

Answer 1

Answer to Part A.

Net Operating Income = Contribution Margin - Fixed Cost

21,000 = (2,80,000 * 70%) - Fixed Cost

Fixed Cost = $175,000

Break Even Point (Dollar Sales) = Fixed Cost/ Contribution Margin Ratio

Break Even Point (Dollar Sales) = $175,000/ 0.70

Break Even Point (Dollar Sales) = $250,000

Answer to Part B.

% Change in Sales = (6,00,000 - 5,00,000)/ 5,00,000 * 100

% change in Sales = 20%

Degree of Operating Leverage = % Change in Operating Income/ % Change in Sales

5 = % Change in Operating Income/ 20

% Change in Operating Income = 100

Operating Income for Next year = $25,000 + ($25,000 * 100%)

Operating Income for next year = $50,000