Mahan Consulting is a service organization that specializes in the design, installation, and servicing of mechanical, hydraulic,
Question:
Sales ........... $974,880
Less: Variable expenses .... 534,234
Contribution margin ...... $440,646
Less: Fixed expenses ...... 264,300
Operating income ...... $176,346
In the coming year, Mahan expects variable costs to increase by 4 percent and fixed costs to increase by 3 percent.
Required:
1. What is the Contribution margin ratio (rounded to three significant digits) for the previous year?
2. Compute Mahan’s break-even point for the previous year in dollars.
3. Suppose that Mahan would like to see a 6 percent increase in operating income in the coming year. What percent (on average) must Mahan raise its bids to cover the expected cost increases and obtain the desired operating income? Assume that Mahan expects the same mix and volume of services in both years.
4. In the coming year, how much revenue must be earned for Mahan to earn an after-tax profit of $175,000? Assume a tax rate of 40 percent.
Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Related Book For
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen
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