Explanation The contribution margin is computed by deducting the variable cost from the sales revenue. A contribution margin ratio is the percentage which shows portion of contribution margin from the sales revenue. It ascertained by dividing the contribution margin with the sales revenue. Break-even point in dollar sales is ascertained by dividing the fixed expenses by Contribution margin ratio. A degree of operating leverage is calculated by dividing the contribution margin and net operating income. Net operating income is an amount left after the deduction of fixed expenses from the contribution margin. 3. Sales (23,750 units) $475,000 Variable expenses $190,000 Contribution margin $285,000 Fixed expenses $180,000 Net operating income $105,000 4. 5. Sales (25,000 units X $18) $450,000 Variable expenses $200,000 Contribution margin $250,000 Fixed expenses ( Advertising expenses) $210,000 Net operating income $40,000 The sales manager ideas consist of three components; the increase of sales by 25% increases the sales revenue, also increases the variable expenses and the advertising expenses increase the fixed expenses by $30,000

15th Edition

ISBN: 9780078025631

Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor

Publisher: McGraw-Hill Education

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Question

Chapter 5, Problem 23P

To determine

Contribution margin ratio:When the difference between the sales revenue and variable expenses is expressed in the form of percentage is called a contribution margin ratio.

Degree of operating leverage:A degree of operating leverage shows the impact of operating leverage on the operating income of a company.

1. The contribution margin ratio

2. The break-even point in dollar sales.

3. The dollar increase in net operating increase.

4.

a) The degree of operating leverage of last year.

b) The percentage increase in net operating income

5. The net operating income and recommendation.

6. The increase of net operating income.

Expert Solution & Answer

Chapter 5 Solutions

Managerial Accounting

Ch. 5 - Prob. 1Q Ch. 5 - Often the most direct route to a business decision...Ch. 5 - Prob. 3Q Ch. 5 - What is the meaning of operating leverage?Ch. 5 - What is the meaning of break-even point?Ch. 5 - 5-6 In response to a request from your immediate...Ch. 5 - Prob. 7Q Ch. 5 - Prob. 8Q Ch. 5 - Prob. 9Q Ch. 5 - Prob. 1AE

Ch. 5 - Prob. 2AE Ch. 5 - Prob. 3AE Ch. 5 - Prob. 4AE Ch. 5 - Prob. 5AE Ch. 5 - Prob. 1F15 Ch. 5 - Prob. 2F15 Ch. 5 - Prob. 3F15 Ch. 5 - Prob. 4F15 Ch. 5 - Prob. 5F15 Ch. 5 - Prob. 6F15 Ch. 5 - Prob. 7F15 Ch. 5 - Prob. 8F15 Ch. 5 - Prob. 9F15 Ch. 5 - Prob. 10F15 Ch. 5 - Prob. 11F15 Ch. 5 - Prob. 12F15 Ch. 5 - Prob. 13F15 Ch. 5 - Prob. 14F15 Ch. 5 - Prob. 15F15 Ch. 5 - Prob. 1E Ch. 5 - Prob. 2E Ch. 5 - Prob. 3E Ch. 5 - Prob. 4E Ch. 5 - Prob. 5E Ch. 5 - Prob. 6E Ch. 5 - Prob. 7E Ch. 5 - Prob. 8E Ch. 5 - Prob. 9E Ch. 5 - EXERCISE 5-10 Multiproduct Break-Even Analysis...Ch. 5 - Prob. 11E Ch. 5 - EXERCISE 5-12 Multiproduct Break-Even Analysis...Ch. 5 - EXERCISE 5-13 Changes in Selling Price, Sales...Ch. 5 - Prob. 14E Ch. 5 - Prob. 15E Ch. 5 - Prob. 16E Ch. 5 - Prob. 17E Ch. 5 - Prob. 18E Ch. 5 - Prob. 19P Ch. 5 - PROBLEM 5-20 CVP Applications: Break-Even...Ch. 5 - PROBLEM 5-21 Sales Mix; Multiproduct Break-Even...Ch. 5 - Prob. 22P Ch. 5 - Prob. 23P Ch. 5 - Prob. 24P Ch. 5 - PROBLEM 5-25 Changes in Fixed and Variable Costs;...Ch. 5 - PROBLEM 5-26 CVP Applications; Break-Even...Ch. 5 - Prob. 27P Ch. 5 - Prob. 28P Ch. 5 - Prob. 29P Ch. 5 - Prob. 30P Ch. 5 - PROBLEM 5-31 Interpretive Questions on the CVP...Ch. 5 - CASE 5-32 Break-Even Analysis for Individual...Ch. 5 - Prob. 33C

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