Question - Last year, Chemise Shirt Company average selling price for its shirts was $25. Chemise is budgeting the following operating results for next year:
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Sales
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$1,200,000
|
|
Variable Cost
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432,000
|
|
Contribution Margin
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768,000
|
|
Fixed Cost
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288,000
|
|
Gross Margin
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$480,000
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Considering the Operating Leverage computed in 12, above, how much will Chemise's operating income increase if their sales increase by 25%? Operating leverage is 1.60 last year.
The marketing manager believes that a $14,000 increase in the monthly advertising budget would result in a 650 unit increase in monthly sales. What should be the overall effect on the company's annual gross margin of this change?
Management is considering using a new component that would increase the unit variable cost by $5. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 300 units. What should be the overall effect on the company's monthly net operating income of this change?