Grands Sporting Goods is a retailer of sporting equipment. Last year, Grands sales revenues totalled $6,000,000. Total

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Grand’s Sporting Goods is a retailer of sporting equipment. Last year, Grand’s sales revenues totalled $6,000,000. Total expenses were $2,100,000. Of this amount, approximately $1,500,000 were variable, while the remainder were fixed. Since Grand’s Sporting Goods offers thousands of different products, its managers prefer to calculate the break-even point in terms of sales dollars rather than units.
Requirements
1. What is Grand’s Sporting Goods’ current operating income (prepare a contribution margin format income statement)?
2. What is Grand’s contribution margin ratio?
3. What is Grand’s break-even point in sales dollars? (Hint: The contribution margin ratio calculated in Requirement 2 is already weighted by Grand’s Sporting Goods’ actual sales mix.)
4. Grand’s top management is deciding whether to embark on a $200,000 advertisement campaign. The marketing firm has projected annual sales volume to increase by 15% as a result of this campaign. Assuming that the projections are correct, what effect would this advertising campaign have on Grand’s Sporting Goods’ annual operating income?
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...
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Managerial Accounting

ISBN: 978-0176223311

1st Canadian Edition

Authors: Karen Wilken Braun, Wendy Tietz, Walter Harrison, Rhonda Pyp

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