Last month when Holiday Creations, Inc., sold 42,000 units, total sales were $31
ID: 2537867 • Letter: L
Question
Last month when Holiday Creations, Inc., sold 42,000 units, total sales were $311,000, total variable expenses were $245,690, and fixed expenses were $36,600 Required . What is the company's contribution margin (CM) ratio? 2. What is the estimated change in the company's net operating income if it can increase total sales by $1,600? (Do not round intermediate calculations.) Answer is complete but not entirely correct. Contribution margin ratio 21 1% Estimated change in net operating income 2. 1,600Explanation / Answer
Answer to part B:
If sales increase by $1600 the contribution increases by 21% of 1600 = 336.
The present contribution is 311000-245690 = 65310. This present contribution increases by 336 to become $65646.
The fixed cost remains the same irrespective of increase in sales. So the estimated net operating income after increase in sales will be 65646 - 36600 = 29046. The earlier operating income is 65310-36600 = 28710.
So the estimated change in net operating income = 29046-28710 = $336
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