Last month when Holiday Creations, Inc., sold 37,000 units, total sales were $283,000, total variable expenses were $215,080, and fixed expenses were $39,600. 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 $2,500? (Do not round intermediate calculations.)

Question

Business

Ezra Tran

3 July, 20:01

Last month when Holiday Creations, Inc., sold 37,000 units, total sales were $283,000, total variable expenses were $215,080, and fixed expenses were $39,600. 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 $2,500? (Do not round intermediate calculations.)

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Answers (1)

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Mike Mckenzie · Answer 1

a. 24%

b. $600

Explanation:

The computation is shown below:

a. The contribution margin ratio is

= (Sales - variable cost) : (Contribution margin) * 100

= ($283,000 - $215,080) : (283,000) * 100

= ($67,920) : (283,000) * 100

= 24%

b. Now the estimate change in the net operating income is

= Increase in total sales * contribution margin ratio

= $2,500 * 24%

= $600

The fixed cost remain unchanged