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What is the contribution margin ratio

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Reference no: EM133272903

The Vice-President of sales, Redge Guerrero, estimates that the variable cost per product unit will increase from P80 to P95. The selling price is expected to remain at P120. The fixed costs for the year amount to P340,000. Last year, the company sold 30,000 units of products and expects to sell the same quantity this year. Guerrero is concerned about the loss in profitability because of increased costs. He asks you to prepare an evaluation of what changes are taking place. 

Required:

  1. What is the contribution margin ratio for this year and last year?
  2. What is the break-even point in sales pesos for this year and last year?
  3. Calculate the margin of safety for last year and this year.
  4. Compute the operating leverage for this year and last year.
  5. Explain what would happen to profits this year if the sales volume could be increased by 15%.

Reference no: EM133272903

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