Oriole Monograms sells stadium blankets that have been monogrammed with high sch
ID: 2332934 • Letter: O
Question
Oriole Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $47 throughout the country to loyal alumni of over 3,700 schools. Oriole’s variable costs are 42% of sales; fixed costs are $116,000 per month.
Assume that variable costs increase to 46% of the current sales price and fixed costs increase by $13,000 per month. If Oriole were to raise its sales price 11% to cover these new costs, but the number of blankets sold were to drop by 6%, what would be the new annual operating income? (Round sales price to 2 decimal places, e.g. 52.75 and final answer to 0 decimal places, e.g. 5,275.)
Explanation / Answer
Solution:-
The new annual operating income :-
Assume number of units = 95,000
= $47 * 95,000
= $4,465,000
= 47 * 46%
= $21.62
= $21.62 * 95,000
= $2,053,000
= 47 - 21.62
= $25.38
= 95,000 * $25.38
= $2,411,100
= ($116,000 * 12 ) + (13,000 * 12)
= ($1,392,000) + (1,560,00)
= $1,548,000
= $2,411,100 - $1,548,000
= $8,63,100
Hence, the new annual operating income = $8,63,100
Particulars Amount per unit ( X) number of units (Y) amount ( X * Y) Sales $47 95,000= $47 * 95,000
= $4,465,000
Variable costs= 47 * 46%
= $21.62
95,000= $21.62 * 95,000
= $2,053,000
Contribution margin = (sales - variable cost )= 47 - 21.62
= $25.38
95,000= 95,000 * $25.38
= $2,411,100
Fixed costs= ($116,000 * 12 ) + (13,000 * 12)
= ($1,392,000) + (1,560,00)
= $1,548,000
Operating income = (contribution margin - fixed cost)= $2,411,100 - $1,548,000
= $8,63,100
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