EXERCISE 3 For the most recent fiscal year, Sparrow Co. reported the following information: Per Unit Total $570,000 $387,600 $140,000 Sales Variable Costs Fixed Costs $28.50 19.38 Determine the Contribution Margin and Income from Operations: Sales Variable Costs Contribution Margin Fixed Costs Net Income Next, calculate the Contribution Margin Ratio Contribution Margin Sales Contribution Margin Ratio Determine the Unit Contribution Margin Sale Price per Unit Variable Cost per UnitUnit Contribution The Contribution Margin Ratio and the Unit Contribution Margin (UCM) can be used to quickly estimate the impact on Net Income using certain assumptions. Example: Calculate the increase in Operating Income that would result from a S50,000 increase in Sales. Completed example below Work Area Increase in Net Income $16,000 $50,000 X 32% CM- Page 3 ofS Example: Calculate the increase in Operating Income that would result from a 1,000 unit increase in Sales. Hint: Use the UCM from above Increase in Operating Income Work Area