Required: a. Compute the contribution margin ratio and the break-even point in dollar sales and in gallons sold for the proposed store. 4 b. Walker thinks that the proposed store will sell between 2,200 and 2,600 gallons of paint per month. Compute the amount of operating income that would be earned per month at each of these sales volumes.
Required: a. Compute the contribution margin ratio and the break-even point in dollar sales and in gallons sold for the proposed store. 4 b. Walker thinks that the proposed store will sell between 2,200 and 2,600 gallons of paint per month. Compute the amount of operating income that would be earned per month at each of these sales volumes.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Required:
a. Compute the contribution margin ratio and the break-even point in dollar sales and in
gallons sold for the proposed store.
4
b. Walker thinks that the proposed store will sell between 2,200 and 2,600 gallons of paint per
month. Compute the amount of operating income that would be earned per month at each of
these sales volumes.
Transcribed Image Text:Rainbow Paints operates a chain of retail paint stores. Although the paint is sold under the
Rainbow label, it is purchased from an independent paint manufacturer. Guy Walker, president
of Rainbow Paints, is studying the advisability of opening another store. His estimates of
monthly costs for the proposed location are as follows.
Fixed costs:
Occupancy costs
Salaries
Other
Variable costs (cost of producing paint)
$3,160
3,640
1,200
$6
per gallon
Although Rainbow stores sell several different types of paint, monthly sales revenue
consistently averages $10 per gallon sold.
Required:
a. Compute the contribution margin ratio and the break-even point in dollar sales and in
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