For nearly 20 years, Grenke Coatings has provided painting and galvanizing services for manufacturers in its region.
Question:
Instructions
(a) Compute and interpret the contribution margin ratio under each approach.
(b) Compute the break-even point in sales dollars under each approach. Discuss the implications of your findings.
(c) Using the current level of sales, compute the margin of safety ratio under each approach and interpret your findings.
(d) Determine the degree of operating leverage for each approach at current sales levels. How much would the company’s net income decline under each approach with a 10% decline in sales?
(e) At what level of sales would the company’s net income be the same under either approach?
(f) Discuss the issues that the company must consider in making this decision.
Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Accounting Tools for business decision making
ISBN: 978-0470095461
4th Edition
Authors: kimmel, weygandt, kieso
Question Posted: