Exercise 3-13

Blossom Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $47 throughout the country to loyal alumni of over 2,100 schools. Blossom's variable costs are 43% of sales; fixed costs are $114,000 per month.

a. Calculate contribution margin ratio.

Answer: 57%

b. What is Blossom's annual breakeven point in sales dollars?

Answer: $2,400,000

c. Blossom currently sells 148,000 blankets per year. If sales volume were to increase by 16%, by how much would operating income increase?

Answer: $634,387

d. Assume that variable costs increase to 47% of the current sales price and fixed costs increase by $12,100 per month. If Blossom were to raise its sales price by 11% to cover these new costs, what would be the new annual breakeven point in sales dollars? (Round sales price to 2 decimal places, e.g. 52.75 and final answer to 0 decimal places, e.g. 5,275.)

Solution: ?

new Variable Cost = .47 x $47 = $22.09

new Fixed Cost= $634,387 + (12,000 x 12) = $658,587

new Selling Price = $47 x ? = $?

****Tried to multiply the 11% by the $47 and input the answer into the equation below and it was marked as incorrect, so I'm confused on how to solve for the new Selling Price.

$? - $22.09 - 658,587 = $0

$? - 658,587 = $0

e. Assume that variable costs increase to 47% of the current sales price and fixed costs increase by $12,100 per month. If Blossom were to raise its sales price by 11% to cover these new costs, but the number of blankets sold were to drop by 6%, what would be the new annual operating income? Round sales price to 2 decimal places, e.g. 52.75 and final answer to 0 decimal places, e.g. 5,275.)

Solution: ?

new Variable Cost = .47 x $47 = $22.09

new Fixed Cost = $634,387 + (12,000 x 12) = $658,587

new Selling Price = $47 x ? = $?

new Contribution Margin = $? - $22.09 = ?

****Still confused on how to calculate for selling price which hinders me from solving this problem as well.