2C2M PHILLIPS AND COMPANY PRODUCES EDUCATIONAL SOFTWARE. ITS CURRENT...

262.

CSO: 2C2g

LOS: 2C2m

Phillips and Company produces educational software. Its current unit cost, based upon

an anticipated volume of 150,000 units, is as follows.

Selling price

$150

Variable costs

60

Contribution margin

90

Fixed costs

60

Operating income

30

Sales for the coming year are estimated at 175,000 units, which is within the relevant

range of Phillip’s cost structure. Cost management initiatives are expected to yield a

20% reduction in variable costs and a reduction of $750,000 in fixed costs. Phillip’s cost

structure for the coming year will include a

a.

per unit contribution margin of $72 and fixed costs of $55.

b.

total contribution margin of $15,300,000 and fixed costs of $8,250,000.

c.

variable cost ratio of 32% and operating income of $9,600,000.

d.

contribution margin ratio of 68% and operating income of $7,050,000.