Question

Last month when Holiday Creations, Inc., sold 41,000 units, total sales were $282,000, total variable expenses were $214,320, and fixed expenses were $36,900. Required: 1. 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 $1,700? (Do not round intermediate calculations.)

Answer 1

Answer:

1. Company’s contribution margin (CM) ratio = 24%

2. Estimated change in the company’s net operating income = $408

Explanation:

1. What is the company’s contribution margin (CM) ratio?

Contribution margin (CM) =  Total sales - Total variable expenses = $282,000 - $214,320 = $67,680

Contribution margin (CM) ratio = Contribution margin / Total sales = $67,680 / $282,000 = 0.24, or 24%

2. What is the estimated change in the company’s net operating income if it can increase total sales by $1,700? (Do not round intermediate calculations.)

Estimated change in the company’s net operating income =  Increase total in sales * Contribution margin (CM) ratio = $1.700 * 24% = $408