30. 59% 31. decrease $93,985 Use the following information to answer questions 3

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30. 59%

31. decrease $93,985

Use the following information to answer questions 30 and 31 Wally's Services offers two types of winter services: snow removal and towing. It reported the following information for the first quarter of 2012. Total $125,000 Variable expense.81.000 Contribution margin..44,000 31250 Sales Net operating income. Product line information Sales mix: 70% snow removal, 30% towing Contribution margin ratio of snow removal:25% . . Wally believes his cost structure and selling prices are stable and will not change for the first quarter of 2013. 30. Compute the contribution margin ratio of towing. 31·Assume that Wally's product line contribution margin ratios are 25% for snow removal and 40% for towing. The weather for the first quarter of 2013 is predicted to be extremely cold and dry. As a result, Wally anticipates that towing will become a much bigger part of his sales mix. In fact, he estimates that it will be 55% of his sales. a. Will Wally's breakeven point in sales dollars increase or decrease as a result of this change? b. Compute Wally's breakeven point in sales dollars as a result of this new sales mix

Explanation / Answer

30)

31)

30% 70% Total Towing Snow removal Sales    125,000.00       37,500.00 125000*.3           87,500.00 125000*.7 Variable expense      81,000.00       15,375.00           65,625.00 (87500*(1-.25) contribution margin      44,000.00       22,125.00           21,875.00 Fixed expenses      31,250.00 Net operating income      12,750.00 Workings: Varible expenses of towing (81000-65625=15375) Margin contribution ratio of towing= 22125/37500 59%

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