Question
1. Magic Manufacturing’s sales slumped badly in 2012. For the first time in its history, it operated at a loss.
The company’s income statement showed the following results from selling 600,000 units of product:
Net sales $2,400,000; total costs and expenses $2,525,800; and net loss $125,800.
Costs and expenses consisted of the amounts shown below:
Total
Variable
Fixed
Cost of Goods Sold
2,085,300
1,465,600
619,700
Selling Expenses
243,500
74,200
169,300
Administrative Expense
197,000
44,200
152,800
2,525,800
1,584,000
941,800
a) Compute the contribution margin ration.
The Contribution Margin Ratio: _____%
b) Compute the break-even point in dollars for 2012.
The break-even point in dollars: $
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2. Change the compensation of salespersons from fixed annual salaries totaling $153,200 to total salaries of $59,100 plus a 3% commission on net sales. Compute the contribution margin ratio.