Question:
Math Tot sells a learning system that helps preschool and elementary students learn basic math facts and concepts. The company"s income statement from last month is as follows:
|
Total
|
Per Unit
|
|
Sales
|
$600,000
|
$12.00
|
|
Variable expenses
|
350,000
|
7.00
|
|
Contribution margin
|
250,000
|
$ 5.00
|
|
Fixed expenses
|
175,000
|
|
|
|
Operating income
|
$ 75,000
|
|
|
Required
1. What is Math Tot"s contribution margin ratio? Its variable cost ratio?
2. What is Math Tot"s margin of safety?
3. If Math Tot"s sales were to increase by $100,000 with no change in fixed expenses, by how much would net operating income increase?
4. Math Tot"s managers have determined that variable costs per unit will increase by 16% beginning next month. To offset this increase in costs, they are considering a 10% increase in the sales price. Market research indicates that the price increase will result in a 2% decrease in the number of learning systems Math Tot sells. What will be Math Tot"s expected net operating income if the price increase is implemented?