Magic Manufacturing’s sales slumped badly in 2012.

1. Magic Manufacturing’s sales slumped badly in 2012. For the first time in its history, it operated at a loss.

The company’s income statement showed the following results from selling 600,000 units of product:
Net sales $2,400,000; total costs and expenses $2,525,800; and net loss $125,800.

Costs and expenses consisted of the amounts shown below:

Total Variable Fixed
Cost of Goods Sold 2,085,300 1,465,600 619,700
Selling Expenses 243,500 74,200 169,300
Administrative Expense 197,000 44,200 152,800
2,525,800 1,584,000 941,800

a) Compute the contribution margin ration.

The Contribution Margin Ratio: _____%

b) Compute the break-even point in dollars for 2012.

The break-even point in dollars: $

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2. Change the compensation of salespersons from fixed annual salaries totaling $153,200 to total salaries of $59,100 plus a 3% commission on net sales. Compute the contribution margin ratio.

Total Variable Fixed
Cost of Goods Sold 2,085,300 1,465,600 619,700
Selling Expenses 243,500 146,200 16,100
Administrative Expense 197,000 44,200 152,800
2,525,800 1,656,000 788,600

The Contribution Margin Ratio: _____%

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