Chapter 20: Q22RQ (page 1122)
What is cost stickiness? Why do managers need to be aware of cost stickiness?
Answer
Variable cost and contribution margin have an inverse connection.
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Following is the income statement for Marrow Mufflers for the month of June 2018:
MARROW MUFFLERS
Contribution Margin Income Statement
Month Ended June 30, 2018
Net Sales Revenue (140 units _ \(250) \) 35,000
Variable Costs (140 units _ \(50) 7,000
Contribution Margin 28,000
Fixed Costs 11,500
Operating Income \) 16,500
Requirements
1. Calculate the degree of operating leverage. (Round to four decimal places.)
2. Use the degree of operating leverage calculated in Requirement 1 to estimate the change in operating income if total sales increase by 40% (assuming no change in sales price per unit). (Round interim calculations to four decimal places and final answer to the nearest dollar.)
3. Verify your answer in Requirement 2 by preparing a contribution margin income statement with the total sales increase of 40%.
What is cost stickiness? Why do managers need to be aware of cost stickiness?
Question: Why is the calculation to determine the target profit considered a variation of the breakeven calculation?
No Slip Co. produces sports socks. The company has fixed costs of\(91,080 and variable costs of \)0.81 per package. Each package sells for $1.80.
Requirements
1. Compute the contribution margin per package and the contribution marginratio. (Round your answers to two decimal places.)
2. Find the breakeven point in units and in dollars using the contributionmargin approach.
On the CVP graph, where is the breakeven point shown? Why?
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