I need help with ONE PIECE OF QUESTION 5 under the propsoed \"total\" and propos
ID: 2514508 • Letter: I
Question
I need help with ONE PIECE OF QUESTION 5 under the propsoed "total" and proposed "per unit" (63.36 is incorrcet) and I have no clue how to do question 6. Everything else is right. Thanks in advance!*****************
value: 25.00 points Deckyard Company distributes a lightweight lawn chair that sells for $72 per unit. Variable expenses are $36.00 per unit, and fixed expenses total $219,000 annually Required. 1. What is the product's CM ratio? CM ratio 50% 2. Use the CM ratio to determine the break-even point in sales dollars. Break-even point in sales dollars438,000 3. The company estimates that sales will increase by $58,000 during the coming year due to increased demand. By how much should net operating income increase? Net operating income increases by $ 29,000Explanation / Answer
Answers
New (Proposed) Selling price is 8% reduced from current $72 per unit.
Hence, proposed selling price (can be calculated in any following way)=
$72 – 8% = $66.24 or
$72 x (100% – 8%) = $66.24 or
$72 – ($72 x 8%) = $66.24
Last year 47,000 units
Proposed 70,500 units
Total
Per unit
Total
Per unit
Sales
$ 33,84,000.00
$ 72.00
$ 46,69,920.00
$ 66.24
Variable expenses
$ 16,92,000.00
$ 36.00
$ 25,38,000.00
$ 36.00
Contribution margin
$ 16,92,000.00
$ 36.00
$ 21,31,920.00
$ 30.24
Fixed expenses
$ 2,19,000.00
$ 2,68,000.00
Net operating income (loss)
$ 14,73,000.00
$ 18,63,920.00
YES, as the Net operating income is showing an Increase to $1,863,920 under Proposed scheme.
Maximum expense on advertising to make the net income same as $1,473,000 = ??
Current
Proposed [Sale units twice the current]
Contribution margin per unit
$36 [given]
31.4 [$36 - $4.6 increase in sales commission]
Total contribution margin
$1,692,000 [47000 units x $36]
$2,951,600 [47000 units x 2 x $31.4]
Hence, the contribution margin will increase by $1,259,600 [2951600 – 1692000] if Variable cost is increased and units sold get doubled.
In order to make the net income same as current, the maximum expenditure on advertising will be equal to this additional contribution margin, which is $1,259,600.
The amount by which the advertising can be increased in $1,259,600
Last year 47,000 units
Proposed 70,500 units
Total
Per unit
Total
Per unit
Sales
$ 33,84,000.00
$ 72.00
$ 46,69,920.00
$ 66.24
Variable expenses
$ 16,92,000.00
$ 36.00
$ 25,38,000.00
$ 36.00
Contribution margin
$ 16,92,000.00
$ 36.00
$ 21,31,920.00
$ 30.24
Fixed expenses
$ 2,19,000.00
$ 2,68,000.00
Net operating income (loss)
$ 14,73,000.00
$ 18,63,920.00
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