Question

Spartan systems reported total sales of $430,000, at a price of $25 and per unit variable expenses of $16, for the sales of their single product. total per unit sales $430,000 $25 variable expenses 275,200 16 contribution margin 154,800 $9 fixed expenses 113,000 net operating income $41,800 what is the amount of contribution margin if sales volume increases by 20%

Answer 1

We are told the company had total sales of $430,000 and sold each product for $25. We can conclude that they sold 17,200 units of their product by dividing 430000 by 25.

As we are selling a single product in the problem's text, and because we told both per-unit contribution margin and net operating income, we have enough information to build a contribution based income statement. In a contribution based (or internal) statement, Revenue - Total Variable Expenses = Contribution Margin and Contribution Margin - Total Fixed Expenses = Operating Income.

$430,000 Total Sales Revenue

(275,200) Total Variable Expenses

$154,800 Total Contribution Margin

(113,000) Total Fixed Expenses

$41,800 Net Income

Think of our above statement as the BEFORE. Now we are going to make the AFTER and increase the volume. Since the selling price is $25 and we sold 17,200 units, we multiply 17,200 times 20% to find the new units sold. 17200 * 20% is 3440 units. We add that to the 17.200 units to find our new sales volume, which is 20,640 units. Since each product sells for $25 each, we can calculate our new contribution margin.

$516,000 Sales Revenue AFTER 20% increase

(330,240) Variable Expenses AFTER 20 % increase; 16 * 20640

$185,760 Contribution Margin AFTER 20% increase

Thus the new contribution margin is $185,760.