Reference no: EM132792233
Question - Operating results for Muffin Top Inc. last month were as follows:
Sales (40,000 units sold) $200,000
Variable costs 140,000
Contribution margin 60,000
Fixed costs 50,000
Net income 10,000
Required -
a) Calculate the contribution margin ratio.
b) Calculate the break-even point in dollars.
c) Calculate the margin of safety as a percentage.
d) Calculate the degree of operation leverage.
e) Using the degree of operating leverage, if sales were to increase by 25%, what would the new net income be?
f) The sales manager is convinced that a $1 reduction in selling price will double the number of units sold. Would you recommend the company s the manager suggests?
g) The operations manager believes that by automating certain functions, which will increase fixed costs by $15,000, he can reduce variable costs per unit by $.50. Should the company do it?
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