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Compute the contribution margin ratio
Course:- Accounting Basics
Reference No.:- EM131722880




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Question - Run Dog operates a chain of grooming salons for pets.

Nancy Smith, president of Run Dog, is studying the advisability of opening another store. Her estimates of monthly costs for the proposed location are:

Costs:

  • Rent - $5,000
  • Salaries - 4,000
  • Other costs which remain the same each month - 1,600
  • Cost for all required products per pet(like shampoo, conditioner etc) - $ 20 per pet

Although Run Dog stores offer several different types of services, monthly sales revenue consistently averages $80 per client served.

Instructions- Please use formulas when preparing your information. It will allow me to understand your calculations.

1. Compute the contribution margin ratio.

2. Calculate the break-even point in sales dollars AND in number of clients serviced for the proposed store.

3. Calculate the targeted profit in sales dollars AND units if the company wants $15,000 for income.

4. Smith thinks that the proposed store will service between 375 and 400 pets per month. Prepare two Cost Volume Profit Income Statements. Please include per unit also.

5. If the company purchases materials from new vendors for $15 per pet(reduction of $5 from original cost above) but the quality will impact the sales price. How low can the sales price go and still maintain the same contribution margin.




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