# Dr.Husaiki

941 Words Feb 25th, 2013 4 Pages
Net income will change as follows:

Arroyo Corporation produced and sold 80,000 units and reported sales of \$4,000,000 during the past year. Management determined that variable expenses totaled \$2,800,000 and fixed expenses totaled \$720,000. What is the company 's contribution margin ratio?
The company 's contribution margin (CM) ratio is determined as follows.
CM ratio = CM ÷ Sales = (Sales – Variable expenses) ÷ Sales
CM ratio = (\$4,000,000 - \$2,800,000) ÷ \$4,000,000 = 30%
--
Ashland Burglar Alarms Inc. sells a single product. The product has a selling price of \$50 per unit and variable expenses of 80% of sales. If the company 's fixed expenses total \$150,000 per year, then it will have a break-even point in sales dollars of:
Margin of safety (in dollars) = Sales – Break-even sales
Margin of safety (in dollars) = \$8,000,000 – \$4,800,000 = \$3,200,000
--
High Fidelity Audio Inc. reported sales of \$8,000,000 for the month and incurred variable expenses totaling \$5,600,000 and fixed expenses totaling \$1,440,000. The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. What is the company 's degree of operating leverage?
The company 's degree of operating leverage is determined as follows:
Degree of operating leverage = Contribution margin ÷ Net operating income
Degree of operating leverage = \$2,400,000 ÷ \$960,000 = 2.5
--
Slattery Company sells three products: A, B and C. Product A 's unit contribution margin is higher than Product B 's and Product B 's is higher than Products C 's. Which one of the following events is most likely to increase the company 's overall break-even point?
Since Product C 's unit contribution margin is lower than Product B 's which is lower than Products A 's, a change in the relative market demand for the products, with the increase favoring Product C relative to Product B and Product A, would be the most likely scenario to increase the company 's overall break-even point. Less contribution margin would be generated as a result of the change in relative market demand; thus, the break-even point would