Telematics Incorporated manufactures flat-screen television sets. The company’s contribution format income statement for 2021 is given below: Total Per Unit Percentage of Sales Sales (25,000 units) $ 2,500,000 $ 100 100% Less variable expenses $ 1,500,000 $ 60 ? % Contribution Margin $ 1,000,000 $ 40 ? % Less Fixed Expenses $ 800,000 Operating Income $ 200,000
Telematics Incorporated manufactures flat-screen television sets. The company’s contribution format income statement for 2021 is given below: Total Per Unit Percentage of Sales Sales (25,000 units) $ 2,500,000 $ 100 100% Less variable expenses $ 1,500,000 $ 60 ? % Contribution Margin $ 1,000,000 $ 40 ? % Less Fixed Expenses $ 800,000 Operating Income $ 200,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Telematics Incorporated manufactures flat-screen television sets. The company’s contribution format income statement for 2021 is given below:
|
Total |
Per Unit |
Percentage of Sales |
Sales (25,000 units) |
$ 2,500,000 |
$ 100 |
100% |
Less variable expenses |
$ 1,500,000 |
$ 60 |
? % |
Contribution Margin |
$ 1,000,000 |
$ 40 |
? % |
Less Fixed Expenses |
$ 800,000 |
|
|
Operating Income |
$ 200,000 |
|
|
Management believes operating income can be further improved and would like you to prepare the following analysis:
Required:
- Compute the company’s Contribution Margin ( CM ) ratio and variable expense ratio.
- Compute the company’s break-even point in both units and sales dollars. Use the equation method
- Assume that sales increase by $ 600,000 next year. If cost behaviour patterns remain unchanged, by how much will the company’s operating income increase. Use the Contribution Margin (CM) ratio to determine your answer.
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Assume that next year, management wants the company to earn a minimum profit of $ 500,000. How many units will have to sold to meet this target profit figure?
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