Dr.Husaiki
Topics:
Contribution margin, Variable cost, Operating leverage Pages: 3 (935 words)
Published: February 19, 2013
Arroyo Corporation produced and sold 80,000 units and reported sales of $4,000,000 during the past year. Management determined that variable expenses totaled $2,800,000 and fixed expenses totaled $720,000. What is the company's contribution margin ratio? The company's contribution margin (CM) ratio is determined as follows. CM ratio = CM ÷ Sales = (Sales – Variable expenses) ÷ Sales CM ratio = ($4,000,000  $2,800,000) ÷ $4,000,000 = 30%

Ashland Burglar Alarms Inc. sells a single product. The product has a selling price of $50 per unit and variable expenses of 80% of sales. If the company's fixed expenses total $150,000 per year, then it will have a breakeven point in sales dollars of: First, determine the contribution margin (CM) ratio as follows. CM ratio = Sales percentage – Variable expenses percentage CM ratio = 100% – 80% = 20%
Then, the breakeven point in sales dollars is determined as follows. Breakeven point in sales dollars = Fixed costs ÷ CM ratio Breakeven point in sales dollars = $150,000 ÷ 20% = $750,000 _
gh Fidelity Audio Inc. reported sales of $8,000,000 for the month and incurred variable expenses totaling $5,600,000 and fixed expenses totaling $1,440,000. The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. If sales increase by 200 units, how much should net income increase? First, determine the contribution margin (CM) per unit as follows. CM per unit = (Sales – Variable expenses) ÷ Number of units sold CM per unit = ($8,000,000  $5,600,000) ÷ 80,000 = $30 per unit Then, determine the impact of the increase in sales on net income as follows. Increase in net income = Increase in sales (in units) x CM per unit Increase in net income = 200 units x $30 per unit = $6,000

High Fidelity Audio Inc. reported sales of $8,000,000 for the month and incurred variable expenses totaling $5,600,000 and fixed expenses totaling $1,440,000....
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