George Corp. has annual revenues of $265,000, an average contribution margin rat

Question

George Corp. has annual revenues of $265,000, an average contribution margin ratio of 34%, and fixed expenses of $115,900.

Management is considering adding a new product to the company's product line. The new item will have $8.4 of variable costs per unit. Calculate the selling price that will be required if this product is not to affect the average contribution margin ratio. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

If the new product adds an additional $32,000 to George's fixed expenses, how many units of the new product must be sold at the price calculated in requirement a to break even on the new product?(Round your intermediate calculations to 2 decimal places. Round your answer to the nearest whole number.)

If 22,700 units of the new product could be sold at a price of $13.6 per unit, and the company's other business did not change, calculate Meyers's total operating income and average contribution margin ratio. (Round your intermediate calculations to 2 decimal places. Round your answers to 2 decimal places. Omit the "$" and "%" signs in your response.)

To illustrate using the sales mix information from Exhibit 12-6, Part I:

To compare using the sales mix information from Exhibit 12-6, Part II:

Just as the shifting of unit sales away from product B to product A produced a negative effect on operating margin, the same negative result is observed with break-even revenues.

revenue-variable expenses=contribution margin

contribution margin ratio= contribution margin/revenues

George Corp. has annual revenues of $265,000, an average contribution margin ratio of 34%, and fixed expenses of $115,900.

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

Since contribution ratio is to remain same at 34%, it means that the variable cost would continue to be 66% (1-.34) of the sales price.

Therefore, New Selling Price would be = 8.4/.66 = 12.727 or 12.73

Answer is $12.73

Part B:

Break Even Point = Fixed Cost of the New Product/Contribution Per Unit = 32000/(12.73 - 8.4) = 7390 units

Answer is 7390 units

Part C:

Total Net Operating Income = 86040 - 25800 = 60240

Average Contribution Margin Ratio = (90100 + 118040)/(265000 + 308720)*100 = 36.28%

Thanks.

Current Revenue New Product Revenue Sales 265000 308720 Variable Cost 174900 190680 Contribution 90100 118040 Total Contribution

Less Fixed Cost 115900
Net Operating Income -25800 86040

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