A cement manufacturer has supplied the following data:<\/p>\n\n\n\n
Tons of cement produced and sold 220,000<\/p>\n\n\n\n
Sales revenue $924,000<\/p>\n\n\n\n
Variable manufacturing expense $297,000<\/p>\n\n\n\n
Fixed manufacturing expense $280,000<\/p>\n\n\n\n
Variable selling and admin expense $165,000<\/p>\n\n\n\n
Fixed selling and admin expense $82,000<\/p>\n\n\n\n
Net operating income $100,000<\/p>\n\n\n\n
a. Calculate the company’s unit contribution margin<\/p>\n\n\n\n
b. Calculate the company’s unit contribution ratio<\/p>\n\n\n\n
c. If the company increases its unit sales volume by 5% without increasing its fixed expenses, what would the company’s net operating income be?<\/p>\n\n\n\n
The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n To analyze the cement manufacturer’s financial performance, we’ll calculate the following:<\/p>\n\n\n\n a. Unit Contribution Margin<\/strong><\/p>\n\n\n\n The unit contribution margin represents the amount each unit sold contributes to covering fixed costs and generating profit. It’s calculated as:<\/p>\n\n\n\n [ Given:<\/p>\n\n\n\n First, determine the total variable expenses:<\/p>\n\n\n\n [ Next, calculate the total contribution margin:<\/p>\n\n\n\n [ Now, compute the unit contribution margin:<\/p>\n\n\n\n [ b. Contribution Margin Ratio<\/strong><\/p>\n\n\n\n The contribution margin ratio indicates the percentage of each sales dollar available to cover fixed costs and contribute to profit. It’s calculated as:<\/p>\n\n\n\n [ Using the previously calculated total contribution margin:<\/p>\n\n\n\n [ c. Impact of a 5% Increase in Sales Volume on Net Operating Income<\/strong><\/p>\n\n\n\n If the company increases its sales volume by 5% without increasing fixed expenses, the new net operating income can be estimated as follows:<\/p>\n\n\n\n [ [ [ Explanation<\/strong><\/p>\n\n\n\n The unit contribution margin of $2.10 indicates that each ton of cement sold contributes $2.10 towards covering fixed costs and generating profit. The contribution margin ratio of 50% reveals that half of the sales revenue is available to cover fixed expenses and profit, while the other half covers variable costs.<\/p>\n\n\n\n When sales volume increases by 5%, the company sells an additional 11,000 tons. Each of these additional units contributes $2.10, leading to an extra $23,100 in contribution margin. Since fixed costs remain unchanged, this entire amount boosts the net operating income, increasing it from $100,000 to $123,100.<\/p>\n\n\n\n This analysis underscores the importance of the contribution margin in decision-making. A higher contribution margin per unit means that each sale adds more to covering fixed costs and profit, enhancing the company’s profitability. Understanding these metrics enables management to make informed decisions about pricing, cost control, and sales strategies to optimize financial performance.<\/p>\n","protected":false},"excerpt":{"rendered":" A cement manufacturer has supplied the following data: Tons of cement produced and sold 220,000 Sales revenue $924,000 Variable manufacturing expense $297,000 Fixed manufacturing expense $280,000 Variable selling and admin expense $165,000 Fixed selling and admin expense $82,000 Net operating income $100,000 a. Calculate the company’s unit contribution margin b. Calculate the company’s unit contribution […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-185356","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/185356","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=185356"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/185356\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=185356"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=185356"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=185356"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\\text{Unit Contribution Margin} = \\frac{\\text{Sales Revenue} – \\text{Total Variable Expenses}}{\\text{Total Units Sold}}
]<\/p>\n\n\n\n\n
\\text{Total Variable Expenses} = \\text{Variable Manufacturing Expense} + \\text{Variable Selling and Administrative Expense} = \\$297,000 + \\$165,000 = \\$462,000
]<\/p>\n\n\n\n
\\text{Total Contribution Margin} = \\text{Sales Revenue} – \\text{Total Variable Expenses} = \\$924,000 – \\$462,000 = \\$462,000
]<\/p>\n\n\n\n
\\text{Unit Contribution Margin} = \\frac{\\$462,000}{220,000 \\text{ units}} = \\$2.10 \\text{ per unit}
]<\/p>\n\n\n\n
\\text{Contribution Margin Ratio} = \\frac{\\text{Total Contribution Margin}}{\\text{Sales Revenue}} \\times 100
]<\/p>\n\n\n\n
\\text{Contribution Margin Ratio} = \\frac{\\$462,000}{\\$924,000} \\times 100 = 50\\%
]<\/p>\n\n\n\n\n
\\text{Additional Units} = 220,000 \\times 0.05 = 11,000 \\text{ units}
]<\/p>\n\n\n\n\n
\\text{Additional Contribution Margin} = \\text{Additional Units} \\times \\text{Unit Contribution Margin} = 11,000 \\times \\$2.10 = \\$23,100
]<\/p>\n\n\n\n\n
\\text{New Net Operating Income} = \\$100,000 + \\$23,100 = \\$123,100
]<\/p>\n\n\n\n