Coporate Finance

Assignment # One

Presented To:

Professor Sagar Kulkarni

January 19, 2015

Produced By:

Gurbaksheesh Sokhey | 7595122 |

Izuorgu Onyebuchi Emmanuel | 7581609 |

Sales | $1,200,000 |

Less: Variable Expenses | $ 800,000 |

Contribution Margin | $ 400,000 |

Less: Fixed Expenses | $ 300,000 |

Operating Income | $ 100,000 |

a) What is the company's contribution margin ratio?

Contribution Margin Ratio - Contribution margin = 400,000 x 100 = 33.33%

Revenues 1,200,000

b) What is the company's break-even in units?

Break Even in Units = Fixed cost

Selling Price per UNIT

Selling Price per UNIT = Sales MINUS(-) Variable Cost

No of Units No of Units

1,200,000 _ 800,000 = 60 - 40 = 20

20,000 20,000

Break Even in UNITS = 300,000 = 15,000 UNITS

20

c) If sales increase by 100 units, by how much should operating income increase?

| INITIAL SALES | NEW SALES |

Sales | $ 1,200,000 | |

Variable expenses | $ 800,000 | |

Contribution margin | $ 400,000 | |

Fixed Expenses | $ 300,000 | |

Operating Income | $100,000 | 102,000 |

No of UNITS | 20,000 | 20,1000 |

| | |

Selling Price per Unit = 1,200,000 / 20,000 = 60

Variable Cost per Unit = 80,000 / 20,000 = 40

As per formula, Operating INCOME = Sales – ( Fixed Cost + Variable Cost)

No. of units * S.P per UNIT - [Fixed Cost + (No of units * V.C)] = 60 x 20,100 - [ 300,000 + ( 40 x 20,100 ) ]

= 1,206,000 - 1,104,000

= 102,000

So, Increase in Operating Income = 102,000 – 100,000 = $ 2000

d) How many units would the company have to...