Texan, Inc. has reached its break-even point and has calculated its contribution
ID: 2522741 • Letter: T
Question
Texan, Inc. has reached its break-even point and has calculated its contribution margin ratio to be 70%, For each $1 increase in sales _______. Check ALL that apply:
total contribution margin will increase by $0.30
net operating income will increase by $0.70
total contribution margin will increase by $0.70
net operating income will increase by $0.30
A.total contribution margin will increase by $0.30
B.net operating income will increase by $0.70
C.total contribution margin will increase by $0.70
D.net operating income will increase by $0.30
Explanation / Answer
contribution margin ratio=contribution margin/Sales
At breakeven;contribution margin=Fixed costs
Hence above breakeven additional sales would bring additional profits in the amount of 'contribution margin ratio*sales value'
Hence for each $1 increase in sales;contribution margin and net operating income would increase by $0.70
Hence the correct options are B and C.
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