A 5% increase in contribution margin, but keeping revenues steady
Contribution margin=revenue- variable cost
600,000-425,000=175,000
105%/100*175,000=183,750
Profit= contribution margin-fixed costs
183,000-150,000=33,750
Profit= 33,750
There is an increase in the profits of the bakery $ 25,000 to $ 33,750 resulting from a 5% increase in contribution margin, but keeping revenues steady.
A 5% decrease in fixed costs
Fixed costs= 150,000
95/100*150,000= 142,500
Profit= revenue-(fixed costs+ variable costs)
600,000- (142,500+ 425,000) = 32,500
The profits of Nicole Walker’s small bakery increased from $ 25,000 to $ 32,500 with a 5% decrease in fixed costs.
Delegate your assignment to our experts and they will do the rest.
A 10% increase in units sold
Units sold = 600,000
110 / 100 * 600,000 = 660,000
Profit = revenue – (fixed costs + variable costs)
660,000 – (150,000 + 425,000) = 85,000
An increase in units sold by 10 % will result to an increase in the profits of Nicole Walker’s small bakery from $ 25,000 to $ 85,000.
A 15% increase in units sold and a 5% increase in fixed costs
A 15% increase in units sold
115 / 100 * 600,000 = 690,000
A 5% increase in fixed costs.
105 / 100 * 150,000 = 157,500
Profit = revenue – (fixed costs + variable costs)
690,000 – (157,500 + 425,000) = 107,500
With a 15% increase in units sold and a 5% increase in fixed costs, the profits of the bakery increases from $ 25,000 to $ 107,500.
A 5% decrease in variable costs and 5% decrease in fixed costs
95 / 100 * 425,000 =403,750
95 / 100 * 150,000 =142500
Profit = 600,000 – (142500 + 403750) = 53,750
Where there is a 5% decrease in variable costs and 5% decrease in fixed costs, profit increases from $ 25,000 to $ 53,750
Nicole Walker should, therefore, expand the business since there is an increase in profits resulting from changes in fixed costs, variable costs, and sales. I, however, made an assumption of the units sold by using the sales revenue to represent those units.
