Data Table Sales Cost of goods sold Gross margin 9,277 6,829 2,448 2,800 Other operating expenses (352) Loss from continuing operations Photo People Company is a provider of imaging technology products and services to the photographic, graphic communications, and health-care markets. A condensed 2011 income statement follows (in millions): : (Click the icon to view the data.) Assume that $1,300 million of the cost of goods sold is a fixed cost representing depreciation and other production costs that do not change with the volume of production. In addition, $1,400 million of the other operating expenses is fixed. Requirements 1. Compute the total contribution margin for 2011 and the contribution margin percentage. Explain why the contribution margin differs from the gross margin. 2. Suppose that sales for Photo People are predicted to increase by 10% and that the cost behavior is expected to continue. Compute the predicted operating income (loss). 3. What assumptions were necessary to compute the predicted operating income in requirement 2? Requirement 1. Compute the total contribution margin for 2011 and the contribution margin percentage. Explain why the contribution margin differs from the gross margin. Begin by determining the formula to calculate the contribution margin. Then, enter the amounts in the formula to compute the contribution margin of Photo People Company. = Contribution margin million - million = million Next, determine the formula to calculate the contribution margin percentage. Then, enter the amounts in the formula to compute the contribution margin percentage. (Enter the contribution margin percentage as a percent rounded to two decimal places, X.XX%.) Contribution margin percentage = = million I million % Explain why the contribution margin differs from the gross margin. The contribution margin is , while gross margin is The variable costs include The contribution margin the gross margin. Requirement 2. Suppose that sales for Photo People are predicted to increase by 10% and that the cost behavior is expected to continue. Compute the predicted operating income (loss). (Round all amounts to the nearest million. Use a minus sign or parentheses for a loss.) (In millions) Operating income (loss) Requirement 3. What assumptions were necessary to compute the predicted operating income in requirement 2? (Select all that apply) Data Table Sales Cost of goods sold Gross margin 9,277 6,829 2,448 2,800 Other operating expenses (352) Loss from continuing operations Photo People Company is a provider of imaging technology products and services to the photographic, graphic communications, and health-care markets. A condensed 2011 income statement follows (in millions): : (Click the icon to view the data.) Assume that $1,300 million of the cost of goods sold is a fixed cost representing depreciation and other production costs that do not change with the volume of production. In addition, $1,400 million of the other operating expenses is fixed. Requirements 1. Compute the total contribution margin for 2011 and the contribution margin percentage. Explain why the contribution margin differs from the gross margin. 2. Suppose that sales for Photo People are predicted to increase by 10% and that the cost behavior is expected to continue. Compute the predicted operating income (loss). 3. What assumptions were necessary to compute the predicted operating income in requirement 2? Requirement 1. Compute the total contribution margin for 2011 and the contribution margin percentage. Explain why the contribution margin differs from the gross margin. Begin by determining the formula to calculate the contribution margin. Then, enter the amounts in the formula to compute the contribution margin of Photo People Company. = Contribution margin million - million = million Next, determine the formula to calculate the contribution margin percentage. Then, enter the amounts in the formula to compute the contribution margin percentage. (Enter the contribution margin percentage as a percent rounded to two decimal places, X.XX%.) Contribution margin percentage = = million I million % Explain why the contribution margin differs from the gross margin. The contribution margin is , while gross margin is The variable costs include The contribution margin the gross margin. Requirement 2. Suppose that sales for Photo People are predicted to increase by 10% and that the cost behavior is expected to continue. Compute the predicted operating income (loss). (Round all amounts to the nearest million. Use a minus sign or parentheses for a loss.) (In millions) Operating income (loss) Requirement 3. What assumptions were necessary to compute the predicted operating income in requirement 2? (Select all that apply)
