16 May Question1. Magic Manufacturing’s sales slumped badly in 2012. For the
Question
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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