Exercise MC$\_2-$ Analysis of changes in Profitability

A hypothetical company markets a particular good for which it purchases the raw material and transfers it

to a subcontractor company that carries out all stages of the transformation process, returning the finished

product. All of the goods thus obtained are sold, so there is no change in inventory, either of raw material

or finished product. The company also incurs fixed administrative and general costs totaling about $$95,000$

per year. To sell products, the company uses outside agents who are paid a commission of $10$ percent on list

prices.

Information on the level of sales, list prices, technical coefficients of production, and purchase prices of the

two inputs are contained in the following sheet:

Required:

Using the information provided so far, the candidate:

Determine the level of contribution margin and operating income in the two fiscal years $($of course

providing the relevant income statements$).$

Provide the value of the margin of safety $($in relative terms$)$ in the two fiscal years.

Determine the degree of cost elasticity of the two companies over the two years

Split the change that occurred in the contribution margin into its two components: that due to

changes in productivity and that due to the price recovery effect. With reference, also, to the change

in productivity, determine how much of it is due to changes in efficiency in the use of raw materials

and how much of it is$,$ on the other hand, due to changes in the efficiency of external processing.

Again: here in particular, the answers given must be adequately justified! In the absence of a clear

demonstration the answers, even if correct, will not be considered.