Compute the contribution margin per unit and the contribution margin ratio.

(CVP; DOL; decision making) Atlantic Fish Company is a whole-sale distributor of cod. The company services restaurants in the Boston area. Small but steady growth in sales has been achieved by Atlantic Fish Company over the past few years, while cod prices have been increasing. The company is formulating its plans for 2010 and has gathered the following information:

Average selling price per pound

$9.00

Costs

Cost of cod per pound

$5.60

Shipping expense per pound

0.40

Selling and administrative expense (rent and salaries)

$650,000

Sales commissions

10% of sales

Expected annual sales volume for 2010: 400,000 pounds of cod

The company’s estimated tax rate is 40 percent.

a. What is the expected net income for the coming year? Prepare a contribution income statement.

b. Compute the contribution margin per unit and the contribution margin ratio.

c. What is the break-even point in pounds sold and revenues?

d. Compute the degree of operating leverage and margin of safety expected for the coming year.

e. Refer to the original data. Using the degree of operating leverage you computed in (d), compute the expected profit if sales are 20% above the expected level.

f. Refer to the original data. How many pounds of cod must be sold to earn an after-tax net income of $900,000?