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3-11 CVP analysis (LO 3) Carr Orthotics Company distributes a specialized ankle support that sells for $30....

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Accounting

3-11 CVP analysis (LO 3)

Carr Orthotics Company distributes a specialized ankle supportthat sells for $30. The company’s variable costs are $18 per unit;fixed costs total $360,000 per year.

Required

a.    If sales increase by$39,000 per year, by how much should operating income increase?

b.    Last year, Carr sold 32,000ankle supports. The company’s marketing manager is convinced that a10% reduction in the sales price, combined with a $50,000 increasein advertising, will result in a 25% increase in sales volume overlast year. Should Carr implement the price reduction? Why or whynot?

Answer & Explanation Solved by verified expert
4.2 Ratings (706 Votes)
a Increase in Operating Income Contribution per unit Selling price per unit variable cost per unit 30 18 12 per unit Contribution Margin Ratio Contribution per unit Selling price per unit x 100 12 30 x 100 040 or 40    See Answer
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