Question

A cement manufacturer has supplied the following data:

Answer 1

Answer:

a. Calculate the company's unit contribution margin

$2.1

b. Calculate the company's unit contribution ratio

0.5 or 50%

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?

$123,100

Explanation:

a.

Unit price = $924,000 / 220,000                                       = $4.2

-Variable cost per unit ($297,000 + 165,000 ) / 220,000 = $2.1

=Contribution margin per unit                                             = $2.1

                                                                                                   

b.

Contribution ratio = Contribution / Sales

Contribution ratio = $2.1 / $4.2

Contribution ratio = 0.5 = 50%

                                                                                                   

c. If sale is Increased by 5%

Number of unit = 220,000 x 105% = 231,000 units

                                                             $

Sales ( $4.2 x 231,000)                  970,200                          

-Variable cost (2.1 x 231,000)       485,100

=Gross Income                               485,100

-Fixed Cost ( 280,000 + 82,000)  362,000

=Net operating Income                  123,100