Question

Last month when Holiday Creations, Inc., sold 41,000 units, total sales were $308,000, total variable expenses were $243,320, and fixed expenses were $35,900. 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 $1,800? (Do not round intermediate calculations.)

Answer 1

A. 0.21

B. $378

Step-by-step explanation:

1. Calculation for the company's contribution margin (CM) ratio

Fist step is to calculate the CM

CM = 308,000 - $243,320

CM= 67,320

Now let calculate the CM Ratio

Using this formula

CM / Sales = CM Ratio

Let plug in the formula

CM Ratio = 64,680 / 308,000

CM Ratio = 0.21

Therefore the company's contribution margin (CM) ratio is 0.21

2. Calculation for the estimated change in the company's net operating income if it can increase total sales by $1,800

Estimated change in the company's net operating income=CM Ratio x 1,800

Estimated change in the company's net operating income= 0.21*$1,800

Estimated change in the company's net operating income=$378

Therefore the estimated change in the company's net operating income if it can increase total sales by $1,800 is $378