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# Calculating CM Ratio, breakeven sales and operating leverage

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Refer data given below:

MARJOLEIN & CO.

Unit price \$20
Variable cost per unit 6
Annual fixed costs 210,000

Calculate CM Ratio, Contribution margin and breakeven sales.

(3) Estimated sales increase \$200,000

Calculate in increase in contribution margin and net operating income.

(4) Operating results last year:
Sales \$320,000
Variable expenses 96,000
Contribution margin 224,000
Fixed expenses 210,000
Net operating income \$14,000

(4b.) Expected sales increase next year 5%
Calculate degree of operating leverage and increase in net operating income.

(5) Units sold last year 20,000
Reduction in selling price 8%
Expected increase in sales 1/4
Make the comparative contribution income statement.

(6) Units sold last year 20,000
Increase in sales commission per unit \$1.50
Expected increase in sales 20%

Calculate incremental Contribution Margin.

#### Solution Preview

Please refer attached file for better clarity and template provided.

Solution:

1. Variable Cost=\$6
Price=\$20
Contribution Margin=(Price-Variable Cost)=20-6=\$14
CM Ratio=CM/Price =14/20=0.70

2. Fixed Costs=\$210,000
CM Ratio=0.70
Breakeven Sales=Fixed Cost/CM Ratio=210000/0.7=\$300,000

3. Increase in Sales=\$200,000
CM ratio=70%
Increase ...

#### Solution Summary

The solution describes the steps for calculating contribution margin, CM ratio, break even sales and degree of operating leverage. It also makes comparative contribution income statement.

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