Zaccaria Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range.?Sales (5,000 units)$300,000?Variable expenses 240,000?Contribution margin60,000?Fixed expenses 58,800?Net operating income $1,200Required:a. What is the contribution margin ratio?b. If sales increase to 5,040 units, what would be the estimated increase in net operating income?c. If the selling price increases by $4 per unit and the sales volume decreases by 400 units, what would be the estimated net operating income?d. What is the break-even point in unit sales?e. What is the margin of safety in dollars?f. What is the degree of operating leverage?
What will be an ideal response?
a. CM ratio = Contribution margin ÷ Sales = $60,000 ÷ $300,000 = 20%
b. The increase in net operating income would be the increased contribution margin because fixed expenses are not affected.
| ? | Selling price per unit ($300,000 ÷ 5,000 units) | $60 |
| ? | Variable cost per unit ($240,000 ÷ 5,000 units) | 48 |
| ? | Unit contribution margin | $12 |
| ? | Unit contribution margin (a) | $12 | per unit |
| ? | Increased unit sales (b) | 40 | units |
| ? | Increase in net operating income (a) × (b) | $480 | ? |
c.
| ? | Selling price ($60 per unit + $4 per unit) | $64 | per unit |
| ? | Variable cost per price | 48 | per unit |
| ? | Unit contribution margin (a) | $16 | per unit |
| ? | Unit sales (b) | 4,600 | units |
| ? | Contribution margin (a) × (b) | $73,600 | ? |
| ? | Fixed expenses | 58,800 | ? |
| ? | Net operating income | $14,800 | ? |
d. Unit sales to break even = Fixed expenses ÷ Unit CM = $58,800 ÷ $12 per unit = 4,900 units
e. Margin of safety in dollars = Total budgeted (or actual) sales - Break-even sales
= $300,000 ? $294,000 = $6,000
f. Degree of operating leverage = Contribution margin ÷ Net operating income
= $60,000 ÷ $1,200 = 50.0
You might also like to view...
H&M is looking to expand its business by opening more stores across the USA. What type of grand strategy is H&M using?
a. turnaround and retrenchment b. growth c. stability d. concentration
Which of the following elements is not a key concept within the triadic reciprocal framework from social cognitive theory?
a. Person, behavior, and attitude b. Behavior, environment, and attitude c. Environment, attitude, and person d. Person, behavior, and environment
What is the best course of action if you are unsure whether your information is common knowledge?
a. Informally poll your friends. b. Cite the source, just to be safe. c. Check multiple sources for consistency. d. Follow your instincts.
A marketing decision support system (MDSS) is a(n) ________
A) basic system used by companies that do not have the resources to develop a marketing information system (MIS) B) popular syndicated research report purchased by most major media companies C) sophisticated information system that allows marketing managers to use statistical and modeling software tools D) type of custom research report often called for in the marketing research process E) data warehouse used to support a marketing information system (MIS)