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The document provides financial data for a tile manufacturer including sales revenue, variable and fixed expenses, and net operating income. It then asks to calculate the company's unit contribution margin, unit contribution ratio, and projected net operating income if unit sales increase by 5% without increasing fixed expenses. The unit contribution margin is calculated as $1.80 per unit and the contribution ratio is 36.74%. If unit sales increase by 5%, net operating income would increase to $184,200.

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Ahmed Daahir Ahmed
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887 views1 page

Image

The document provides financial data for a tile manufacturer including sales revenue, variable and fixed expenses, and net operating income. It then asks to calculate the company's unit contribution margin, unit contribution ratio, and projected net operating income if unit sales increase by 5% without increasing fixed expenses. The unit contribution margin is calculated as $1.80 per unit and the contribution ratio is 36.74%. If unit sales increase by 5%, net operating income would increase to $184,200.

Uploaded by

Ahmed Daahir Ahmed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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A tile manufacturer has supplied the following data: Boxes of tile produced and sold

580,000 Sales revenue $2,842,000 Variable manufacturing expense $1,653,000 Fixed


manufacturing expense $784,000 Variable selling and admin expense $145,000 Fixed
selling and admin expense $128,000 Net operating income $132,000

Required: a. Calculate the company's unit contribution margin

Contribution margin = Sales - Variable expenses


Contribution margin = $2,842,000 - ($1,653,000 + $145,000)
Contribution margin = $1,044,000
Unit contribution margin = Contribution margin Boxes of tiles
Unit contribution margin = $1,044,000 580,000
Unit contribution margin = $1.8

b. Calculate the company's unit contribution ratio

Contribution margin ratio = Contribution margin Sales


Contribution margin ratio = $1,044,000 $2,842,000
Contribution margin ratio = 36.74% (rounded)

c. If the company increases its unit sales volume by 5% without increasing its fixed
expenses, what would the company's net operating income be?

Contribution margin = Sales - Variable expenses


Contribution margin = $2,132,000 - ($650,000 + $260,000)
Contribution margin = $1,222,000
Unit contribution margin = Contribution margin Boxes of tiles
Unit contribution margin = $1,222,000 520,000
Unit contribution margin = $2.35
Increase in sales units = 580,000 x 5% = 29,000 units
Increase in net operating income = Unit contribution margin x Increase in sales units
= $1.8 x 29,000
= $52,200
New net operating income = Current net operating income + Increase
= $132,000 + $52,200
= $184,200

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