1.

Contribution Margin per Unit:

Contribution Margin=SP−VC=80−50=$30Contribution Margin=SP−VC=

80−50=$30

2. Units Sold Annually:

Annual Units Sold=Annual Sales RevenueSP=2,400,00080=30,000 units

Annual Units Sold=SPAnnual Sales Revenue=802,400,000=30,000 units

3. Total Contribution Margin:

Total Contribution Margin=Units Sold×Contribution Margin=30,000×30=

$900,000Total Contribution Margin=Units Sold×Contribution Margin=30
,000×30=$900,000

4. Total Fixed Costs:

Fixed Costs per Unit×Units Sold=12×30,000=$360,000Fixed Costs per U

nit×Units Sold=12×30,000=$360,000

5. Total Profit:

Total Profit=Total Contribution Margin−Total Fixed Costs=900,000−360,

000=$540,000Total Profit=Total Contribution Margin−Total Fixed Costs
=900,000−360,000=$540,000

6. Average Receivables in Days:

Average Receivables=Annual Sales Revenue365×Trade Receivable Perio

d=2,400,000365×40=$263,014Average Receivables=365Annual Sales Re
venue×Trade Receivable Period=3652,400,000×40=$263,014

7. Annual Cost of Receivables:

Cost of Receivables=Average Receivables×Cost of Capital=263,014×0.12

=$31,562Cost of Receivables=Average Receivables×Cost of Capital=263
,014×0.12=$31,56
 Updated Calculations

Increase in Sales by 5%

1. New Annual Sales Revenue:

New Annual Sales Revenue=2,400,000×1.05=$2,520,000New Annual Sa

les Revenue=2,400,000×1.05=$2,520,000

2. New Units Sold Annually:

New Units Sold=New Annual Sales RevenueSP=2,520,00080=31,500 uni

tsNew Units Sold=SPNew Annual Sales Revenue=802,520,000=31,500 u
nits

3. New Total Contribution Margin:

New Total Contribution Margin=31,500×30=$945,000New Total Contrib

ution Margin=31,500×30=$945,000

4. New Total Fixed Costs:

New Fixed Costs=12×31,500=$378,000New Fixed Costs=12×31,500=$3

78,000

5. New Total Profit:

New Total Profit=945,000−378,000=$567,000New Total Profit=945,000

−378,000=$567,000

Increase in Receivables

1. New Average Receivables in Days:

New Average Receivables=2,520,000/365×60=$414,247

 2. New Annual Cost of Receivables:

New Cost of Receivables=414,247×0.12=$49,710New Cost of Receivabl

es=414,247×0.12=$49,710

Comparison of Profit Increase and Receivable Costs

1. Increase in Profit:

Increase in Profit=567,000−540,000=$27,000Increase in Profit=567,000−

540,000=$27,000

2. Increase in Cost of Receivables:

Increase in Cost of Receivables=49,710−31,562=$18,148Increase in Cost

of Receivables=49,710−31,562=$18,148

3. Net Increase in Profit:

Net Increase in Profit=27,000−18,148=$8,852Net Increase in Profit=27,0

00−18,148=$8,852