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.
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
= (318,200/317,000) × 36,000
= 36,136 units
If the total variable cost for 36,000 units was $259,940 then for 36,136 units, total variable cost
= (36136/36000) × $259,940 (using intermediate figures computed without rounding off)
= $260,924
Hence net income at this level
= $318,200 - $260,924 - $36,200
= $21,076
The estimated change in the company’s net operating income
= $21,076 - $20,860
= $216
