Klein Company distributes a highquality bird feeder that sel

Klein Company distributes a high-quality bird feeder that sells for $35 per unit. Variable costs are $14 per unit, and fixed costs total $336,000 annually. Required: Answer the following independent questions CM ratio 2. Use the CM ratio to determine the break-even point in sales dollars. reak-even point in sales dollars 3. The company estimates that sales will increase by $53,000 during the coming year due to increased demand. By how much should operating income increase? Operating income increases by 4. Assume that the operating results for last year were as follows: Sales Variable expenses $860,000 440,000 Contribution margin Fixed expenses 420,000 336,000 Operating income 84,000

Solution

1. ans. Selling cost per unit             = $ 35

Variable cost per unit             = $ 14

Contribution margin per unit   =$ 21

Contribution ratio = $21*100/$35

= 60%

2. ans Break even point in dolloars = fixed cost / contributiion ratio

= $ 336000/ 60%

= $ 560,000

3. ans Given sales increase by $ 53,000{ assumed sales increased over break even sales then contribution margin increased is the operating income increased

i.e., No of units increased by $ 53000/$ 35= 1514 units ( approx)

Operating income increases by, sales of 1514 units            = $ 53000

variable cost of 1514 units = $ 21196

Contribution Margin= $ 31804= operating income

since sales increased are above the breakeven (assumed)