Comprehensive CVP analysis (Learning Objectives 1, 2, 3, 4, 5) FlashCo. manufactures (1 mathrm{~GB}) flash drives (jump

Question:

Comprehensive CVP analysis (Learning Objectives 1, 2, 3, 4, 5)

FlashCo. manufactures $1 \mathrm{~GB}$ flash drives (jump drives). Price and cost data for a relevant range extending to 200,000 units per month are as follows:

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\section*{Requirements}
1. What is the company's contribution margin per unit? Contribution margin percentage? Total contribution margin?
2. What would the company's monthly operating income be if the company sold 150,000 units?
3. What would the company's monthly operating income be if the company had sales of $\$ 4,000,000$ ?
4. What is the breakeven point in units? In sales dollars?
5. How many units would the company have to sell to earn a target monthly profit of $\$ 260,000$ ?
6. Management is currently in contract negotiations with the labor union. If the negotiations fail, direct labor costs will increase by $10 \%$ and fixed costs will increase by $\$ 22,500$ per month. If these costs increase, how many units will the company have each month to break even?
7. Return to the original data for this question and the rest of the questions. What is the company's current operating leverage factor (round to two decimals)?
8. If sales volume increases by $8 \%$, by what percentage will operating income increase?
9. What is the firm's current margin of safety in sales dollars? What is its margin of safety as a percentage of sales?
10. Say FlashCo. adds a second line of flash drives (2 GB rather than $1 \mathrm{~GB}$ ). A package of the $2 \mathrm{~GB}$ flash drives will sell for $\$ 45$ and have variable cost per unit of $\$ 20$ per unit. The expected sales mix is three of the small flash drives ( $1 \mathrm{~GB}$ ) for every one large flash drive ( $2 \mathrm{~GB}$ ). Given this sales mix, how many of each type of flash drive will FlashCo. need to sell to reach its target monthly profit of $\$ 260,000$ ? Is this volume higher or lower than previously needed (in Question 5) to achieve the same target profit? Why?