15 18000 picture frames 3 suppose susan had 1000

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3-18
3-30 (15 min.) Contribution margin, decision making.
1. Revenues $500,000
Deduct variable costs:
Cost of goods sold $200,000
Sales commissions 50,000
Other operating costs 40,000 290,000
Contribution margin $210,000
2. Contribution margin percentage =
$500,000
$210,000
= 42%
3. Incremental revenue (20% × $500,000) = $100,000
Incremental contribution margin
(42% × $100,000) $42,000
Incremental fixed costs (advertising) 10,000
Incremental operating income $32,000
If 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) $600,000
Cost of goods sold (40% of sales) 240,000
Gross margin 360,000
Operating costs:
Salaries and wages $150,000
Sales commissions (10% of sales) 60,000
Depreciation of equipment and fixtures 12,000
Store rent 48,000
Advertising 10,000
Other operating costs:
Variable (
$500,000
$40,000
× $600,000) 48,000
Fixed 10,000 338,000
Operating income $ 22,000

3-19
3-31 (20 min.) Contribution margin, gross margin and margin of safety.
1.
Mirabella Cosmetics
Operating Income Statement, June 2008
Units sold 10,000
Revenues $100,000
Variable costs
Variable manufacturing costs $ 55,000
Variable marketing costs 5,000
Total variable costs 60,000
Contribution margin 40,000
Fixed costs
Fixed manufacturing costs $ 20,000
Fixed marketing & administration costs 10,000
Total fixed costs 30,000
Operating income $ 10,000
2. Contribution margin per unit =
$40,000
$4 per unit
10,000 units
=
Breakeven quantity =
Fixed costs $30,000
7,500 units
Contribution margin per unit $4 per unit
= =
Selling price =
Revenues $100,000
$10 per unit
Units sold 10,000 units
= =
Breakeven revenues = 7,500 units × $10 per unit = $75,000
Alternatively,
Contribution margin percentage =
Contribution margin $40,000
40%
Revenues $100,000
= =
Breakeven revenues =
Fixed costs $30,000
$75,000
Contribution margin percentage 0.40
= =
3. Margin of safety (in units) = Units sold – Breakeven quantity
= 10,000 units – 7,500 units = 2,500 units
4. Units sold 8,000
Revenues (Units sold × Selling price = 8,000 × $10) $80,000
Contribution margin (Revenues × CM percentage = $80,000 × 40%) $32,000
Fixed costs 30,000
Operating income 2,000
Taxes (30% × $2,000) 600
Net income $ 1,400

3-20
3-32 (30 min.) Uncertainty and expected costs.
1. Monthly Number of Orders Cost of Current System
300,000 $1,000,000 + $40(300,000) = $13,000,000
400,000 $1,000,000 + $40(400,000) = $17,000,000
500,000 $1,000,000 + $40(500,000) = $21,000,000
600,000 $1,000,000 + $40(600,000) = $25,000,000
700,000 $1,000,000 + $40(700,000) = $29,000,000
Monthly Number of Orders