Question 1. Butler Sales Company is a distributor that has an exclusive franchise to sell a particular product made by another company. Butler Sales Company's income statements for the last two years are given below:
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This Year
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Last Year
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Units sold..................................................
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200,000
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160,000
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Sales revenue.............................................
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$1,000,000
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$800,000
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Less cost of goods sold.............................
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700,000
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560,000
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Gross margin.............................................
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300,000
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240,000
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Less operating expenses............................
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210,000
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198,000
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Net operating income................................
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$ 90,000
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$ 42,000
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Operating expenses are a mixture of fixed costs and variable and mixed costs that vary with respect to the number of units sold.
Required to do:
a. Estimate the company's variable operating expenses per unit, and its total fixed operating expenses per year. (express it as a cost formula.)
b. Compute the company's contribution margin for this year.
Question 2. Baker Company has a product that sells for $20 per unit. The variable expenses are $12 per unit, and fixed expenses total $30,000 per year.
Required to do:
a. What is the total contribution margin at the break-even point?
b. What is the contribution margin ratio for the product?
c. If total sales increase by $20,000 and fixed expenses remain unchanged, by how much would net operating income be expected to increase?
d. The marketing manager wants to increase advertising by $6,000 per year. How many additional units would have to be sold to increase overall net operating income by $2,000?