NIKE is deciding whether to produce a new sneaker designed for long-distance run

Question

NIKE is deciding whether to produce a new sneaker designed for long-distance runners. In order to make a final decision, NIKE needs you to create a CVP income statement using the following information: Sales Revenue Cost of Goods Sold Gross Profit Selling and Admin Expenses Net Operating Income $34,350,000 19,038,000 15,312,000 10,563,000 $4,749,000 COGS Fixed Cost Percentage S & A Fixed Cost Percentage 55% 60% Requirement #1-Complete the CVP Income Statement. Sales Revenue Variable Cost Contribution Margin Fixed Cost Net Operating Income Requirement #2-Calculate the Contribution Margin Ratio. Show as a percentage, round to 0 decimals) Contribution Margin Ratio Requirement #3-Calculate the Degree of Operation Leverage (Round to 2 decimals) Degree of Operating Leverage

Explanation / Answer

1) Complete the CVP income statement :

2) Contribution margin ratio = 21557700*100/34350000 = 63%

3) Degree of operating leverage = 21557700/4749000 = 4.54

Sales revenue 34350000 Variable cost (19038000*45%+10563000*40%) (12792300) Contribution margin 21557700 Fixed cost (19038000*55%+10563000*60%) (16808700) Net operating income 4749000

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