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Carr Corporation has provided the following contribution format income statement
Carr Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range.
|
Sales (8,000 units) |
$240,000 |
|
|
Variable expenses |
168,000 |
|
|
Contribution margin |
72,000 |
|
|
Fixed expenses |
71,100 |
|
|
Net operating income |
$900 |
Required:
a. What is the contribution margin per unit?
b. What is contribution margin ratio?
c. What is the variable expense ratio?
d. If sales decline to 7,900 units, what would be the estimated net operating income?
e. If the variable cost per unit increases by $4, spending on advertising increases by $3,000, and unit sales increase by 3,400 units, what would be the estimated net operating income?
f. What is the break-even point in dollar sales?
g. What is break-even point in units?
h. Estimate how many units must be sold to achieve a target profit of $35,400.
i. What is margin of safety?
j. What is the margin of safety percentage?
k. What is degree of operating leverage?
l. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 10% increase in sales?
Expert Solution
| Part-a |
| Contribution Margin Per Unit = Total Contribution Margin / Unit Sold |
| =72000/8000=$9 |
| Part-b :- |
| CM Ratio= Contribution Margin / Sales |
| =72000/240000=30% |
| Part-c |
| Variable Expense Ratio= Variable Cost/ Sales |
| =168000/240000=70% |
| Part-d : |
| Net Income = Contrubiton from 7900 unit - Fixed Cost |
| =(7900*9)-71100=$0 |
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