1. Calculate the contribution margin ratio for the entire firm

2. Calculate the margin of safety (in total sales dollars) based on last year?s data

3. Calculate the weighted average contribution margin per unit based on last year?s data

4. Assuming that the sales mix remains the same as last year, how many units (in total and by product line) must be sold to earn $143,550 in pre-tax profit?

Total Units:

Economy Units:

Deluxe Units:

5. Assume that the company sold the total number of units computed in question 4 above, but that ? of the units were economy and ? deluxe. Without making specific calculations, predict whether the company would make more or less than $143,550.

6. For this question only, assume that the company is considering eliminating the economy product because it is not paying its ?fair share? of the fixed costs. Only $20,000 of the total fixed costs are directly attributable to the economy product. The marketing manager estimates that sales of the deluxe product would increase by 10% if consumers did not have the option of buying the lower end product. In addition, the space currently used for the economy model could be used to store finished goods inventory. The company is currently paying $15,000 a year for a finished goods warehouse. How much would profit increase/decrease if the economy product is eliminated?

7. For this question only, assume that Tandem has received a special order request from a foreign customer who wants to buy 5,000 deluxe units at a price of $75 each. The company would save the 5% sales commission it normally pays on the sale of the deluxe product. Assume the company only has 4,000 hours of excess or idle machine capacity, and both the economy and the deluxe product take 1 hour to produce. To fill the special order (which is an all or nothing order), the company would have to forego some sales of either the deluxe or the economy units. If the company accepts the special order, what is the maximum incremental profit they would earn on the special order?

Tandem Company produces and sells two models of a product economy and deluxe. The economy model is a standard product that is produced in large batches and kept in stock to be sold to a few large discount chains. The deluxe model is produced in smaller batches based on customer specifications and is distributed through smaller, high-end retail stores. Production and sales last year were as follows: Last year's income statement (displayed in a variable costing format) is shown below: Sales Revenue Total Variable Costs Contribution Margin Fixed Costs: Pre- Tax Profit Economy 6,000 Units Per Unit $40.00 28.00 $12.00 Total $240,000 168,000 $72,000 Deluxe 4,000 Units Per Unit $100.00 60.00 $40.00 Total $400,000 240,000 $160,000 10,000 units Total $640,000 408,000 $232,000 181,250 $ 50,750