Calculate the contribution margin ratio for may of both year

Assignment Help Accounting Basics

Reference no: EM131988302

Problem

Suppose that Kicker had the following sales and cost experience (in thousands of dollars) for May of the current year and for May of the prior year:

	May, Current Year	May, Prior Year
Total sales	$43,560	$41,700
Materials	(17,000)	(16,000)
Labor and supplies	(1,400)	(1,200)
Commissions	(1,250)	(1,100)
Contribution margin	$23,910	$23,400
Fixed warehouse cost	(680)	(500)
Fixed administrative cost	(4,300)	(4,300)
Fixed selling cost	(5,600)	(5,000)
Research and development	(9,750)	(4,000)
Operating income	$3,580	$9,600

In May of the prior year, Kicker started an intensive quality program designed to enable it to build original equipment manufacture (OEM) speaker systems for a major automobile company. The program was housed in research and development. In the beginning of the current year, Kicker's accounting department exercised tighter control over sales commissions, ensuring that no dubious (e.g., double) payments were made. The increased sales in the current year required additional warehouse space that Kicker rented in town.

Required:

1. Calculate the contribution margin ratio for May of both years.
2. Calculate the break-even point in sales dollars for both years. Use the ratios computed in Requirement 1.
3. Calculate the margin of safety in sales dollars for both years.

Reference no: EM131988302

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