(TCO B) A cement manufacturer has supplied the following data: Tons of cement pr
ID: 2386848 • Letter: #
Question
(TCO B) A cement manufacturer has supplied the following data:Tons of cement produced and sold 220,000
Sales revenue $924,000
Variable manufacturing expense $297,000
Fixed manufacturing expense $280,000
Variable selling and admin expense $165,000
Fixed selling and admin expense $82,000
Net operating income $100,000
Required:
a. Calculate the company's unit contribution margin
b. Calculate the company's unit contribution ratio
c. If the company increases its unit sales volume by 5% without increasing its fixed expenses, what would the company's net operating income be?
(Points : 25)
Explanation / Answer
a. Unit Contribution Margin (C) is Unit Revenue (Price, P) minus Unit Variable Cost (V): C=P-V = (924,000/220,000) - ((297,000+165,000)/220,000) = $2.1 b.Contribution Margin Ratio is the percentage of Contribution over Total Revenue, which can be calculated from the unit contribution over unit price or total contribution over Total Revenue: C/P = 2.1/{924,000/220,000} = 2.1/4.2 = 0.5 c. Increase in sales = 5% New sales = 220000*(1.05) = 231,000 Revenue = 231000*(4.2) = $970,200 Variable cost = (297,000+165,000)*1.05 = $485,100 Fixed Costs = 280,000+82,000 = $362,000 Net operating income = $123,100
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