1. CVP Analysis; Break-even point, margin of safety: DBP's Drums, Ltd, produces and sells a single product, drum kits, whose selling price is $499.00 per drum kit and whose variable cost is $322.00 per drum kit. The company's fixed costs are $35,000 per month. The current sales volume for November is 280 drum kits. a. Prepare a contribution margin income statement for the month of November at the current sales volume (see e-text exhibit 5.13 for example). b. Determine the monthly break-even point: 1) In units (round your answer up to the nearest whole unit) 2) In sales dollars (round your answer to the nearest cent (i.e. 2 decimal places) c. What is the company's margin of safety for November: 1) In units 2) In sales dollars d. Assume the company's monthly target profit is $22,200. 1) Determine the unit sales needed to attain this target profit. Round your answer up to the nearest whole unit. 2) Determine the dollar sales needed to attain this target profit. Round your answer up to the nearest whole unit. 2. CVP analysis; break-even: K-9's Companions, Inc. operates a chain of pet supply stores that carry many styles of dog beds that are all sold at the same price. The following data pertains to K-9's Companions and is typical of the company's many outlets: Per dog bed Selling price $ 60.00 Variable expenses (per unit): Product costs (DM, DL, MOH) $ 27.25 Selling and admin costs 7.50 Per month: $ Fixed expenses (monthly amounts): Advertising Rent Administrative Salaries 3,150 1,800 13,440 a. What is K-9's Companions monthly break-even point in both unit sales and dollar sales? Round your unit sales answer up to the nearest whole unit. Round your dollar sales answer to the nearest cent (i.e. two decimal places). b. If 780 dog beds are sold in a month, what would be K-9's Companion's monthly net operating income (loss)? C. If 700 dog beds are sold in a month, what would be K-9's Companion's monthly net operating income (loss)? d. Suppose the current sales volume is 780 dog beds per month. The company is considering using higher quality materials in the manufacturing process of its dog beds. This switch in materials quality will increase variable product costs by $1.75 per unit. The firm plans to advertise this change in materials to customers, which will increase advertising costs by $900 per month, but the firm also expects that this advertising campaign will increase sales volume by 110 dog beds per month. i. What would be the effect of these changes on the number of units needed to break even? ii. What would be the effect of these changes on current net income per month? iii. Based on your answers, should the firm make this change? Why or why not? Briefly explain your
