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8 September, 05:08

Last month when Holiday Creations, Inc., sold 37,000 units, total sales were $315,000, total variable expenses were $239,400, and fixed expenses were $39,000. Required: 1. What is the company's contribution margin (CM) ratio? 2. What is the estimated change in the company's net operating income if it can increase total sales by $1,100? (Do not round intermediate calculations.)

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  1. 8 September, 05:20
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    1. What is the company's contribution margin (CM) ratio?

    = sales - variable cost / sales

    = $315,000 - $239,400/$315,000

    = $75,600/$315,000

    = 0.24 x 100

    = 24%

    2. What is the estimated change in the company's net operating income if it can increase total sales by $1,100?

    Net operating income

    = sales - variable cost - fixed cost

    = $315,000 - $239,400 - $39,000

    = $36,600

    Change in operating income

    = $316,100 - $239,400 - 39,000

    = $37,700

    Contribution margin ratio

    = $316,600 - $239,400/316,600

    = $77,200/$316,600

    = 0.24 x 100

    = 24%

    Estimated change

    =Change in total sales x CMR

    = $1,100 x 24%

    = $264
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