# Contribution Margin Calculations - Jilk Inc, Kardas Corp, Pellegren Corp, Bazin Corp

7. Jilk Inc.'s contribution margin ratio is 40% and its fixed monthly expenses are $40,000. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $120,000? Ans: $8,000

8. Data concerning Kardas Corporation's single product appear below:

Per unit % of Sales

Selling price $150 100%

Variable expenses 30 20

Contribution margin $120 80%

The company is currently selling 8,000 units per month. Fixed expenses are $800,000 per month. The marketing manager believes that a $20,000 increase in the monthly advertising budget would result in a 200 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? Ans: $4,000 increase

9. Data concerning Pellegren Corporation's single product appear below:

Per unit % of Sales

Selling price $200 100%

Variable expenses 60 30

Contribution margin 140 70%

Fixed expenses are $531,000 per month. The company is currently selling 4,000 units per month. The marketing manager would like to cut the selling price by $14 and increase the advertising budget by $35,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 800 units. What should be the overall effect on the company's monthly net operating income of this change? Ans: $9,800

10. Data concerning Bazin Corporation's single product appear below:

Per unit % of Sales

Selling price $100 100%

Variable expenses 25 25

Contribution margin $ 75 75%

Fixed expenses are $384,000 per month. The company is currently selling 6,000 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $9 per

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#### Solution Preview

7. sales x contribution margin - fixed costs = (120,000 x 40%) - 40,000 = $8,000

8. before any change: 8,000 units x contribution margin - fixed costs = (8,000 x $120) - 800,000 = $160,000

After the change: (8,000 + 200) ...

#### Solution Summary

For the four problems, the solutions show the mathematical computations to arrive at the answer given in the problems.