Suppose Company A wants to improve its contribution margin per unit as the means to order to increase its operating profit $240,000. Assume its 120,000 units sales volume remains the same. Assume, further, that the business targeted its product cost as the most feasible way to improve contribution margin per unit. So, assume that sales price, variable operating expenses per unit, and fixed operating expenses remain the same. How much would product cost have to improve to achieve the $240,000 increase in Operating profit?
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Company A
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Totals
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Per Unit
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Sales volume, in units
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120,000
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Sales revenue
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$24,000,000
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$200.00
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Cost of goods sold expense
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$15,600,000
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$130.00
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Gross margin
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$8,400,000
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$70.00
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Variable operating expenses
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$3,600,000
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$30.00
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Contribution margin
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$4,800,000
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$40.00
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Fixed operating expenses
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$3,000,000
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$25.00
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Operating profit
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$1,800,000
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$15.00
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