Zaldor Corporation

Zaldor Corporation

1 Variable expense ratio is calculated by dividing total sales by the total variable expenses.

VER=TVC/TS where VER is variable expense ratio, TVC is total variable cost or expense, and TS is total sales

TVC=750000, TS=1250000

Therefore, variable cost ratio=750000/1250000

=0.6

=60 percent

2    Contribution margin ratio is the difference of the total sales of a company and variable expenses and then expressed in percentage form (Bragg, 2013).

CMR= (Sales-Variable expenses)/sales

= (1250000-750000)/1250000

=500000/1250000

=0.4*100

=40 percent

3   Break-even point in units= fixed costs/ (sales price per unit-variable cost per unit

=400000/ (50-30)

=400000/ 20

=20000

4    According to Bragg (2013), break-even sales in dollars is given by price per unit multiplied break-even sales in units.

= price per unit*break even sales in unit

=50*20000

= 1000000

5   Let us assume that the number of units sold is x. Profit is obtained by getting the difference between sales and the total expenses.

250000= 50x- (30x+400000)

250000=50x- 30x-400000

250000=20x-400000

250000+400000=20x

650000=20x

X=32500 therefore, to make a profit of 250000, the company should sell 250000 units

6 The new variable expense would be 33 and the fixed cost would become 440000 and the price per unit would become $60. The new profit or loss would be:

(25000*60)- ((33*25000) +440000)

=1500000- (825000+440000)

=235000 the company will make a profit of $235000 if it implements the change.

  1. I would recommend the management to make the change because by making the change, the profit of the company would increase from 100000 to $235000. The profit would increase by $135000.

References

Bragg, S. M. (2013). Financial analysis: A controller’s guide. Hoboken, NJ: Wiley.

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