Question 1 - Contribution Margin (4 Marks)

The following information has been provided by the Windsor Office Supply Store for the first quarter of the year:

Sales

$1,400,000

Variable selling expense

140,000

Fixed selling expense

100,000

Cost of goods sold

640,000

Fixed administrative expenses

220,000

Variable administrative expenses60,000

REQUIRED:

What is the contribution margin of Windsor Office Supply Store for the first quarter (show calculations)?

Cost Volume Profit Analysis (21 marks)

The monthly income statement (Contribution format) is show below.

Sales in units .................... 20,000

Sales ................................. 900,000

Less:Variable Expenses . 540,000

Contribution Margin .......... 360,000

Fixed Expenses ................ 315,000

Net Income ....................... 45,000

REQUIRED:

1.Calculate the contribution margin on a per unit basis.

2.Calculate the contribution margin ratio.

3.Determine the company's degree of operating leverage

4.Determine the company's break-even point in units and in dollar sales

5.Determent the company's margin of safety and the company's margin of safety as a percentage of sales.

Each of the following situations is to be evaluated independently and should refer to the original data.

6.Determine the new net income if sales volume increases 20% and variable expenses increase by $3.00 per unit.(The increase in sales is due to improved quality of the product.)

7.Determine the new net income if the price is reduced by $5 per unit, and as a result, sales volume increases 30%.

8.Addition of $30,000 in fixed expenses (quality control procedures) will reduce variable expenses by $6.00 and will increase sales by 15%.Show calculations and determine if the expenditure should be undertaken.

9.What level of sales are required if the company wants to see a $60,000 net income.

10.What price should the company charge if they want to earn $36,000 on a sales volume of 15,000.