Compute the contribution margin ratio for the mailboxes

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Reference no: EM13940026

CONTRIBUTION MARGIN RATIO, BREAK-EVEN SALES, OPERATING LEVERAGE

Doerhing Company produces plastic mailboxes. The projected income statement for the coming year follows:

Sales	$560,400
Less: Variable costs	257,784
Contribution margin	$302,616
Less: Fixed costs	150,000
Operating income	$152,616

Required:

1. Compute the contribution margin ratio for the mailboxes.

2. How much revenue must Doerhing earn in order to break even?

3. What is the effect on the contribution margin ratio if the unit selling price and unit variable cost each increase by 10 percent?

4. Suppose that management has decided to give a 3 percent commission on all sales. The projected income statement does not reflect this commission. Recompute the contribution margin ratio, assuming that the commission will be paid. What effect does this have on the break-even point?

5. If the commission is paid as described in Requirement 4, management expects sales revenues to increase by $80,000. How will this affect operating leverage? Is it a sound decision to implement the commission? Support your answer with appropriate computations.

Reference no: EM13940026

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