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
- What is Math Tot”s contribution margin ratio? Its variable cost ratio?
- What is Math Tot”s margin of safety?
- 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?
- 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?