Use the contribution margin income statement and the shortcut contribution margin approaches to determine Anderson's current (1) sales revenue and (2) operating income. Begin by computing the contribution margin ratio. (Enter the result as a whole number.) The contribution margin ratio is %.
![**Understanding Contribution Margin and Operating Income: An Educational Approach**
Colton Dry Cleaners has analyzed its financials and identified the following costs: total variable expenses amount to $42,000, and total fixed expenses are $30,000. The required sales revenue to break even is $50,000.
**Objective:**
Determine the company's current:
1. Sales revenue.
2. Operating income.
**Approach:**
1. **Compute the Contribution Margin Ratio:**
- Use the contribution margin income statement.
- Apply shortcut contribution margin methods to ascertain Anderson's current sales revenue and operating income.
**Instructions:**
- Begin by calculating the contribution margin ratio. *(Ensure the result is a whole number.)*
Input is required for:
- **The contribution margin ratio:** [ ]%
**Concept Breakdown:**
- **Contribution Margin Ratio:** This ratio measures the portion of sales revenue that exceeds total variable costs. It is crucial for determining break-even points and profitability.
By understanding these elements and their calculations, financial performance can be effectively measured, guiding strategic decisions for businesses like Colton Dry Cleaners.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3fc3ef53-ef76-4c8f-9c49-6c2ebf0a14b7%2F680cae2c-092e-45a2-97a6-5e7a158df2db%2Fblhyqab_processed.jpeg&w=3840&q=75)
SOLUTION:-
Calculation of Current Sales Revenue
Current Sales revenue = Variable expenses/ (1- Contribution margin ratio)
=$ 42,000/ (1 – 0.60)
= $ 105,000
Therefore current Sales Revenue is $ 105,000.
Calculation of Operating Income
Operating Income= Sales revenue – Total Variable expenses – Total fixed expenses
= $ 105,000 - $ 42,000 - $ 30,000
= $ 33,000
Therefore Current operating income is $ 33,000.
Contribution margin Income Statement Approach
|
|
Amount |
|
Sales Revenue |
$ 1,05,000 |
|
Less: Total Variable Expenses |
$ 42,000 |
|
Contribution margin |
$ 63,000 |
|
Less: Total fixed Expenses |
$ 30,000 |
|
Operating Income |
$ 33,000 |
Step by step
Solved in 2 steps
