Question

Last month when Holiday Creations, Inc., sold 37,000 units, total sales were $319,000, total variable expenses were $248,820, and fixed expenses were $38,700. Required: 1. What is the company's contribution margin (CM) ratio? Contribution margin ratio % 2. Estimate the change in the company's net operating income if it were to increase its total sales by $2,300. Estimated change in net operating income

Answer 1

	1	Contribution Margin Ration=	Sales-Variable cost
			Sales
		Contribution Margin Ration=	319,000- 248,820
			319,000
		Contribution Margin Ration=	70,180
			319,000
		Contribution Margin Ration=	22%
	2	change in net operating income of the Company if total sale increases by $ 2,300
		The Answer sis $ 506
	Cell Reference	Particulars	Present Scenario	Proposed Scenario
	A	Sales	319,000	321,300
	B	Variable cost (Refer note 1)	248,820	250,614
	C	Fixed cost	38,700	38,700
	D=A-B-C-	Net operating income	31,480	31,986
		Change in Net operating income		506
		Variable cost ratio to sales=	Variable cost	Variable cost
			Sales
		Variable cost ratio to sales=	248,820
			319,000
		Variable cost ratio to sales=	78%
		Variable cost in case of proposed scenario	=Sales*78%
		Variable cost in case of proposed scenario	250,614