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Unformatted text preview: 3-30Contribution margin, decision making. 1.Revenues$500,000Deduct variable costs:Cost of goods sold$200,000Sales commissions50,000Other operating costs40,000290,000Contribution margin$210,0002.Contribution margin percentage = $500,000$210,000= 42%3.Incremental revenue (20% $500,000) = $100,000Incremental contribution margin(42% $100,000)$42,000Incremental fixed costs (advertising)10,000Incremental operating income$32,000If Mr. Schmidt spends $10,000 more on advertising, the operating income will increase by $32,000, converting an operating loss of $10,000 to an operating income of $22,000.Proof (Optional):Revenues (120% $500,000)$600,000Cost of goods sold (40% of sales)240,000Gross margin 360,000Operating costs:Salaries and wages$150,000Sales commissions (10% of sales)60,000Depreciation of equipment and fixtures12,000Store rent48,000Advertising10,000Other operating costs:Variable ($500,000$40,000 $600,000)48,000Fixed10,000338,000Operating income$ 22,0003-36CVP analysis, income taxes.1.Unit CM = $11.25 CMRatio = 45% (11.25 25)x 20,000 = $225,000 - $135,000 FC = 90,000 x 60% = $54,000 after tax profitRevenues Variable costs Fixed costs...
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This note was uploaded on 07/07/2009 for the course ACCT 2102 taught by Professor Unknown during the Three '08 term at Queensland.
- Three '08