Hi all, I am having trouble with 5-7. Please show work so that I can learn how t

ID: 2475072 • Letter: H

Question

Hi all, I am having trouble with 5-7. Please show work so that I can learn how to do it for the future. Thank you!

The contribution format income statement for Huerra Company for last year is given below: Total Sales Variable expenses Unit $4,000,000 $80.00 2,800,000 56.00 Contribution margin Fixed expenses 1,200,000 24.00 840,000 16.80 Net operating income Income taxes @ 30% 60,000 7.20 108,000 2.16 Net income $252,000 $5.04 The company had average operating assets of $2,000,000 during the year.

Explanation / Answer

Sales ( 4000,000 x 1.20)

4800000

(-) variable cost ( 2800000*1.20)

-3360000

New cotributon margin

1440000

(-) Fixed cost

-840000

Net operating income

600000

(-) Taxes 30%

-180000

Net Income

420000

Margin = net operating income/ sales

= 600,000/480,000

= 12.50% increased

Turnover = sales/ assets

= 4800000/2000,000

=2.40 increased

It will decrease operating income by 40,000

Margin = net operating income/ sales

= (360,000-40,000)/4000,000

= 8%

Turnover = 4000,000/(2000,000-40,000)

= 2.04 increased.

7) It will reduce assets by 200,000.

Margin = 9% unaffected.

Turnover = 4000,000/(2000,000-200,000)

= 2.22 increased