Bilkent University Faculty of Business Administration Spring 2012-2013 MAN 312 Quiz 1-SOLUTIONS 1. A tile manufacturer has supplied the following data: Answer a and b. [pic] a. What is the company’s contribution margin ratio? 1,128,000-456,000-156,000=516,000/1,128,000= %45. 74 b. What is the company’s marfin of safety in %? BE Sales= (320,000+96,000)/%45. 74= 909,488$ Margin of Safety= (1,128,000-909,488)/1,128,000=%19. 37 2. City Corporation produces and sells a single product. Data concerning that product appear below: pic] Fixed expenses are $110,000 per month. The company is currently selling 1,000 units per month. Required: Management is considering using a new component that would increase the unit variable cost by $56. Since the new component would improve the company’s product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company’s monthly net operating income of this change if fixed expenses are unaffected? Use Incremental Approach. Show your work!
Selling Price= 190$ Variable Expense/unit= 38+56=94$ Unit CM= 190-94=96$ Present CM = 152,000 (152*1,000) Expected CM = 144,000 (96*1,500) Decrease in CM = (8,000) No change in FC = – Decrease in NOI = (8,000) Bilkent University Faculty of Business Administration Spring 2012-2013 MAN 312 Quiz 1 1. A tile manufacturer has supplied the following data: Answer a and b. [pic] a. What is the company’s unit contribution margin? 1,128,000-456,000-156,000=516,000/240,000= 2. 15$/unit b.
What is the company’s marfin of safety in terms of quantity? BE Sales Quantity= (320,000+96,000)/2. 15= 193,488 units Margin of Safety= 240,000-193,488=46,512 units 2. City Corporation produces and sells a single product. Data concerning that product appear below: [pic] Fixed expenses are $110,000 per month. The company is currently selling 1,000 units per month. Required: Management is considering using a new production technique that would decrease the unit variable cost by $16, but increase the fixed costs by $48,000.
However, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company’s monthly net operating income of these changes? Use Incremental Approach. Show your work! Selling Price= 190$ Variable Expense/unit= 38-16=22$ Unit CM= 190-22=168$ Present CM = 152,000 (152*1,000) Expected CM = 252,000 (168*1,500) Increase in CM = 100,000 Increase in FC = (48,000) Increase in NOI = 52,000
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