Last month when Holiday Creations, Inc., sold 36,000 units, total sales were $316,000, total variable expenses were $252, 800, and fixed expenses were $38, 500. Required: What is the company’s contribution margin (CM) ratio? Estimate the change in the company’s net operating income if it were to increase its total sales by $2, 400.
Don't use plagiarized sources. Get Your Custom Essay on
Question & Answer: Last month when Holiday Creations, Inc., sold 36,000 units, total sales were $316,000, total variable expenses were $2…..
GET AN ESSAY WRITTEN FOR YOU FROM AS LOW AS $13/PAGE
1. Contribution margin = Sales – Variable expenses = $316,000-$252,800 = $63,200
Contribution margin ratio = Contribution margin/Sales = $63,200/$316,000 = 0.20 = 20%
Change in net operating income = Change in sales*Contribution margin ratio
Increase in net operating income = $2,400*20% = $480