Chromatics, Inc., produces novelty nail polishes. Each bottle sells for ($3.60). Variable unit costs are as follows:

Question:

Chromatics, Inc., produces novelty nail polishes. Each bottle sells for $$3.60$. Variable unit costs are as follows:

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Fixed overhead costs are $$12,000$ per year. Fixed selling and administrative costs are $$6,720$ per year. Chromatics sold 35,000 bottles last year.
Required:
1. What is the contribution margin per unit for a bottle of nail polish? What is the contribution margin ratio?
2. How many bottles must be sold to break even? What is the break-even sales revenue?
3. What was Chromatics’s operating income last year?
4. What was the margin of safety?
5. Suppose that Chromatics, Inc., raises the price to $$4.00$ per bottle, but anticipated sales will drop to 30,400 bottles. What will the new break-even point in units be? Should Chromatics raise the price? Explain.