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11 August, 18:10

Last month when Holiday Creations, Inc., sold 37,000 units, total sales were $283,000, total variable expenses were $215,080, and fixed expenses were $39,600. 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 $2,500? (Do not round intermediate calculations.)

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  1. 11 August, 18:12
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    a. 24%

    b. $600

    Explanation:

    The computation is shown below:

    a. The contribution margin ratio is

    = (Sales - variable cost) : (Contribution margin) * 100

    = ($283,000 - $215,080) : (283,000) * 100

    = ($67,920) : (283,000) * 100

    = 24%

    b. Now the estimate change in the net operating income is

    = Increase in total sales * contribution margin ratio

    = $2,500 * 24%

    = $600

    The fixed cost remain unchanged
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