Kiltop Company produces a toy dart gun. The projected income statement for the coming year follows:

Required:
1. Compute the contribution margin ratio for the toy gun.
2. How much revenue must Kiltop earn in order to break even?
3. What volume of sales must be earned if Kiltop wants to earn an after-tax income equal to 8% of sales? Assume that the tax rate is 34%.
4. What is the effect on the contribution margin ratio if the unit selling price and unit vari¬
able cost each increase by 10%?
5. Suppose that management has decided to give a 3% commission on all sales. The pro¬
jected income statement does not reflect this commission. Recompute the contribution margin ratio assuming that the commission will be paid. What effect does this have on the break-even point?
6. If the commission is paid as described in Requirement 5, management expects sales rev¬
enues to increase by $80,000. Is it a sound decision to implement the commission? Sup¬
port your answer with appropriate computations.
7. Refer to the original data. Compute the safety margin and the operating leverage. Com¬
pute the percentage change in profits if sales increase by 15%.

Transcribed Image Text:

Sales Less: Variable costs Contribution margin $480,000 249,600 Less: Fixed costs $230,400 180,000 Operating income $ 50,400