Exercise 6-4 Computing and Using the CM Ratio [LO6-3] Last month when Holiday Creations, Inc., sold 36,000 units, total sales we

Question

4 years ago

9

Exercise 6-4 Computing and Using the CM Ratio [LO6-3] Last month when Holiday Creations, Inc., sold 36,000 units, total sales we

re $317,000, total variable expenses were $259,940, and fixed expenses were $36,200. 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 $1,200? (Do not round intermediate calculations.)

Business

2 answers:

blondinia [14] · Answer 1 · 2022-01-07T01:02:33+03:00

Answer:

The answer is:

1. 18%

2. $216

Explanation:

1. Contribution margin ratio = contribution margin ÷ sales

Where contribution per unit = selling price per unit minus variable cost per unit OR sales minus total variable cost

= $317,000 - $259,940

=$57,060.

Therefore, contribution margin ratio is: $57,060 ÷ $317,000

= 0.18 or 18%

2. The estimated change in the company’s net operating income if it can increase total sales by $1,200 is: change in total sales x contribution margin ratio.

$1,200 x 18%

=$216.

Marat540 [252] · Answer 2 · 2022-01-07T02:07:41+03:00

Answer:

1. 0.18

2. $216

Explanation:

The company's contribution margin is the difference between the total sales and the total variable cost. the contribution margin ratio may then be computed as the ratio of the contribution margin to the total sales.

The difference between the contribution margin and the fixed cost gives the net income.

The total sales and total variable cost are functions of the level of activity o number of units produced and sold.

Contribution margin ratio

= ($317,000 - $259,940)/$317,000

= 0.18

The net income

= $317,000 - $259,940- $36,200

= $20,860

If the company sold 36,000 and total sales was 317,000 then the company increases sales to

= $317,000 + $1,200

= $318,200

then the number of units sold would have increased from 36,000 to