ComputerGuard offers computer consulting, training, and repair services. For the

Question

ComputerGuard offers computer consulting, training, and repair services. For the most recent fiscal year, profit was $360,400, as follows:

Linda O’Flaherty, the owner of ComputerGuard, believes that in the coming year, she can increase sales by 20 percent. Assuming the current mix of services, what will be the percentage increase in profit associated with a 20 percent increase in sales? (Round weighted-average contribution margin ratio to 6 decimal places, e.g. 0.124547 and final answer to 2 decimal places, e.g. 15.25%.)

Consulting Training Repair Total Sales $661,600 $512,300 $376,900 $1,550,800 Less variable costs: Salaries 318,700 203,000 225,800 747,500 Supplies/parts 23,800 39,800 76,900 140,500 Other 1,200 2,700 5,600 9,500 Contribution margin $317,900 $266,800 $68,600 653,300 Less common fixed costs: Rent 59,100 Owner’s salary 210,600 Utilities 12,200 Other 11,000 Profit $360,400

Explanation / Answer

If sales increases by 20% , then profit would be

Consulting

Training

Repair

Total

Sales

793920

614760

452280

1860960

Less variable costs:

Salaries

382440

243600

270960

897000

Supplies/parts

28560

47760

92280

168600

Other

1440

3240

6720

11400

Contribution margin

381480

320160

82320

783960

Less common fixed costs:

Rent

59,100

Owner’s salary

210,600

Utilities

12,200

Other

11,000

Profit

$ 491,060

Increase in profit = $ 491060 - 360400 = 130660

% increase in profit = 130660 / 360400 * 100 = 36.25 %

Consulting

Training

Repair

Total

Sales

793920

614760

452280

1860960

Less variable costs:

Salaries

382440

243600

270960

897000

Supplies/parts

28560

47760

92280

168600

Other

1440

3240

6720

11400

Contribution margin

381480

320160

82320

783960

Less common fixed costs:

Rent

59,100

Owner’s salary

210,600

Utilities

12,200

Other

11,000

Profit

$ 491,060

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