Sales $20,000 Variable expenses $12,000 Contribution Margin $8,000 Fixed Expense
ID: 2377609 • Letter: S
Question
Sales $20,000
Variable expenses $12,000
Contribution Margin $8,000
Fixed Expenses $6,000
Net Operating Income $2,000
1. What is the contribution margin per unit?
2. What is the contribution margin ratio?
3. What is the variable expense ratio?
4. If the sales increase to 1,001 units, what would be in te increase in net operating income?
5. If sales decline to 900 units, what would be the the net operating income?
6. If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?
7. If the variable cost per unit increases by $1, spending on advertising increases by $1,500, and unit sales increase by 250 units, what would be the net operating income?
8.What is the break-even point in unit sales?
9. What is the break-even point in sales dollars?
10.How many units must be sold to acheive a target profit of $5,000.
11. What is the margin of safety in dollars? What is the margin of safety performance?
12. What is the degree of operating leverage?
13. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales?
14. Assume that the amounts of the comapny's total variable expenses and the total fixed expenses were reversed. Assume that the total variable expenses are $6,000 and the total fixed expenses are $12,000. What is the degree of operating leverage?
15. Using the degree of operating leverage that you compared in the previous question, what is the estimated percent increase in net operating income of a 5% increase in sales?
Please show work!!
Explanation / Answer
Contribution to sales ratio = [Contribution margin/ sales in $ ] x 100
=> Contribution to sales ratio = [ 8000 /20000] x 100
=> Contribution to sales ratio = 40 %
Margin of safety in $ = Net income in $ / Contribution to sales ratio
=> $ 2000/ 40 %
=> $5000 <---
Margin of safety as a % = Margin of safety as a % of sales
=> [ Margin of safety in $ / Sales in $] x 100
=> [ $5000 / $ 20000] x 100
=>25%
Answer : Margin of safety in ($) = $ 5000 , Margin of safety as a (%) = 25 %
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