a.
Compute contribution margin ratio for each line of products.
a.
Explanation of Solution
Contribution Margin Ratio: The contribution margin ratio shows the amount of difference in the actual sales value and the variable expenses in percentage. This margin indicates that percentage which is available for sale above the fixed costs and the profit.
Following formula is used to calculate contribution margin ratio:
Calculate the contribution margin ratio for each line of products:
Product Hats:
Product Shirts:
Hence, the contribution margin ratio for product Hats is 30% and for product Shirts is 75%.
b.
Compute the following assuming the current sales mix:
- 1. Average contribution margin ratio of total monthly sales.
- 2. Monthly operating income.
- 3. Monthly break-even sales volume.
b.
Explanation of Solution
Sales mix: Sales mix refers to the relative percentage of the total sales based on the provided number of products. In other words, it is expressed as a percentage of units sold for each product with respect to the total units sold for all the products.
- 1. Calculate the average contribution margin ratio of total monthly sales:
Particulars | Contribution margin ratio |
From Hats | 12% |
From Shirts | 45% |
Average contribution margin ratio | 57% |
Table (1)
Working notes:
Calculate the average contribution margin ratio for product Hats:
Calculate the average contribution margin ratio for product Shirts:
- 2. Calculate the monthly operating income.
Step 1: Calculate total contribution margin.
Step 2: Calculate the monthly operating income.
- 3. Calculate the monthly break-even sales volume in dollars:
c.
Compute the following assuming the new sales mix:
- 1. Average contribution margin ratio of total monthly sales.
- 2. Monthly operating income.
- 3. Monthly break-even sales volume.
c.
Explanation of Solution
Sales mix: Sales mix refers to the relative percentage of the total sales based on the provided number of products. In other words, it is expressed as a percentage of units sold for each product with respect to the total units sold for all the products.
- 1. Calculate the average contribution margin ratio of total monthly sales:
Particulars | Contribution margin ratio |
From Hats | 18% |
From Shirts | 30% |
Average contribution margin ratio | 48% |
Table (1)
Working notes:
Calculate the average contribution margin ratio for product Hats:
Calculate the average contribution margin ratio for product Shirts:
- 2. Calculate the monthly operating income.
Step 1: Calculate total contribution margin.
Step 2: Calculate the monthly operating income.
- 3. Calculate the monthly break-even sales volume in dollars:
d.
Explain the changes in the company’s financial position so significantly with the new sales mix.
d.
Explanation of Solution
In the new sales mix, sales of shirts overcame some types of sales of hats as shirts contribute a much higher margin than hats. That says the sales of shirts in a particular sales volume contribute less than that of hats, generate a good income and avoid break even by reducing the sales volume.
Want to see more full solutions like this?
Chapter 20 Solutions
Gen Combo Loose Leaf Financial Accounting; Connect Access Card
- 128361 MENTS was extracted by as at 30 June 2018. als to agree. 30 June 2018 Dr with each other. Trial Balance as at 31 December 2017 32.7X D. Fearon extracted the following trial balance from his books. He could not get the totals to agree Dr Cr Cr $ $ $ $ 87,050 Capital 25,621 62,400 Drawings 13,690 110° 305 410 Sales 94,630 Multiple Each multipl answers: (A) question and (B), (C) or (D piece of pape of questions written atter When you your answer 3,168 Purchases 258 60,375 61 A debit 595 Returns inwards and outwards 1,210 1,109 10,000-35 Wages and salaries 2,000 14,371 12,490 Sundry expenses чут -598 8,120 5,045 Inventory 1.1.2017 8,792 168 account (A) we (B) we (C) we h that 6,790+85 Accounts receivable and accounts 16811,370 4,290 (D) we payable 4,520 Loan from J. Chandler 2000 62 Inventor 5,000 17,017 Equipment 16,000 period is 1,134 Bank 1500 (A) carri 5,790 109,522 109,522 Suspense (B) carri 1,546 (C) tran 132,196 132,196 nd: by $350. ercast by $100. 50, have been entered in n…arrow_forwardNonearrow_forwardAnsarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education