question archive ABC Company Projected Income Statement For the Current Year Ending December 31 Sales (4,000 units) $400,000 Less variable costs: Variable manufacturing costs $100,000 Variable selling costs 60,000 Total variable costs 160,000 Contribution margin $240,000 Less fixed costs: Fixed manufacturing costs $120,000 Fixed selling and administrative costs 60,000 Total fixed costs 180,000 Operating income $ 60,000 Required: A
ABC Company Projected Income Statement For the Current Year Ending December 31 Sales (4,000 units) $400,000 Less variable costs: Variable manufacturing costs $100,000 Variable selling costs 60,000 Total variable costs 160,000 Contribution margin $240,000 Less fixed costs: Fixed manufacturing costs $120,000 Fixed selling and administrative costs 60,000 Total fixed costs 180,000 Operating income $ 60,000 Required: A
Subject:FinancePrice:3.87 Bought7
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ABC Company Projected Income Statement For the Current Year Ending December 31 |
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Sales (4,000 units) |
$400,000 |
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Less variable costs: |
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Variable manufacturing costs |
$100,000 |
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Variable selling costs |
60,000 |
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Total variable costs |
160,000 |
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Contribution margin |
$240,000 |
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Less fixed costs: |
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Fixed manufacturing costs |
$120,000 |
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Fixed selling and administrative costs |
60,000 |
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Total fixed costs |
180,000 |
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Operating income |
$ 60,000 |
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Required:
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A. |
Determine the break-even point in sales dollars. |
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B. |
The sales manager believed the company could increase sales by 1,000 units if advertising expenditures were increased by $25,000. By how much will operating income increase or decrease if the advertising is increased as suggested? |
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Answer:
A. Calculation of break-even point in sales dollars
Break-even point in sales dollars = Fixed Cost / Contribution Margin Ratio
= $ 1,80,000 / 60 %
= $ 3,00,000
Contribution margin ratio = Contribution Margin / Total Sales *100
= $ 2,40,000 / $ 4,00,000 * 100
= 60%
B.
Increase (Decrease) in net operating income = (Increase in sales * Contribution margin ratio) - Increase in advertising budget
= ( $1,00,000 * 60% ) - $25,000
= $ 35,000
If Advertising expenditure increased by $ 25000 then it will result in increase in net operating income by $ 35,000
Increase in sales = 1000 Units * $ 100 per Unit
= $ 1,00,000
