HighTide Canvas Co. currently makes and sells two model sizes of a boat cover. Data applicable to the current operation are summarized in the following columns labeled Current Operation. Management is considering adding a Medium model to its current Large and Small models. Expected data if the new model is added are shown in the following columns labeled Proposed Expansion:

Required:
a. Calculate the company’s current total contribution margin and the current average contribution margin ratio.

b. Calculate the company’s current amount of operating income.
c. Calculate the company’s current breakeven point in dollar sales.
d. Explain why the company might incur a loss, even if the sales amount calculated in c was achieved and selling prices and costs didn’t change.
e. Calculate the company’s total operating income under the  proposed expansion.
f. Based on the proposed expansion data, would you recommend adding the Medium model? Why or why not?
g. Would your answer to f change if the Medium model sales volume were to increase to 1,000 units annually and all other data remained the same? Why or why not?

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Selling price per unit Variable expenses per unit Annual sales volume-units Fixed expenses for year Current Operation Large $2,000 800 1,000 Total of $700,000 Small $1,200 700 2,000 Proposed Expansion Large $2,000 800 600 Small $1,200 700 1,700 Total of $840,000 Medium $1,500 800 800