*Please type out the answer. A tile manufacturer has supplied the following data
ID: 2437560 • Letter: #
Question
*Please type out the answer.
A tile manufacturer has supplied the following data.
Tons of cement produced and sold
220,000
Sales revenue
$924,000
Variable manufacturing expense
$297,000
Fixed manufacturing expense
$280,000
Variable selling and admin expense
$165,000
Fixed selling and admin expense
$82,000
Net operating income
$100,000
Required:
Calculate the company's unit contribution margin.
Calculate the company's contribution margin ratio.
If the company increases its unit sales volume by 5% without increasing its fixed expenses, what would the company's net operating income be?
Tons of cement produced and sold
220,000
Sales revenue
$924,000
Variable manufacturing expense
$297,000
Fixed manufacturing expense
$280,000
Variable selling and admin expense
$165,000
Fixed selling and admin expense
$82,000
Net operating income
$100,000
Explanation / Answer
1. Unit contribution margin = [$924,000 - ($297,000 + $165,000)] / 220,000 tons = $2.10
2. Contribution margin ratio = $462,000 / $924,000 = 50%
3. Degree of operating leverage = Contribution margin / Net operating income = $462,000 / $100,000 = 4.62
Then, a 5% increase in sales x 4.62 DOL = 23.1% increase in net operating income = $123,100
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