Managerial Accounting (15th Edition)

Published by McGraw-Hill Education
ISBN 10: 007802563X
ISBN 13: 978-0-07802-563-1

Chapter 5 - Cost-Volume-Profit Relationships - Exercises: Exercise 5-4

Answer

Answer (1) Contribution margin ratio (W-1) 40% Answer (2) Change in net operating income (W-2) 400

Work Step by Step

(W-1) Sales 200,000 Less: Variable costs (120,000) Contribution margin 80,000 CM ratio (80,000 / 200,000) = 40% (W-2) Revised sales (200,000 + 1,000) = 201,000 Revised Contribution margin (201,000 \times 40%) = $80,400 Less: Fixed costs (65,000) Revised net operating income (80400 - 65,000) = 15,400 Current net operating income (200,000 - 120,000 - 65,000) = 15,000 Change in net income (15,400 - 15,000) = 400 Comment: The net operating income will increase by 400.
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