(1) Dodge Industries incurs the following costs during the current year:

Depreciation of machinery	$15,000
Direct labor.	6,000
Direct materials	4,000
Executive salaries	20,000
Insurance	2,000
Rent on building	8,000
Sales commissions	10,000
Vehicle lease cost	5,000

Sales for the year were $80,000 and Dodge Industries determined that only the direct production costs (prime costs) and sales commissions are to be classified as variable costs; all other costs are classified as fixed costs. Dodge sold 400 units.

(a) Calculate the unit contribution margin and the contribution margin ratio for Dodge

Industries.

(b) Dodge Industries is considering plans that would increase the contribution margin ratio for next year. Should it pursue these plans? Explain.

(2)Southwestern College is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet:

OPTION one: Crestview Country Club

a. Fixed rental cost of $1,000

b. $12 per person for food

OPTION two: Tallgrass Country Club

a. Fixed rental cost of $3,000

b. $8.00 per person for food

Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.

1) Which option has the lowest breakeven point?

2) Which option provides the greatest operating income if 600 people attend?

3) Which option provides the greatest degree of operating leverage if 600 people attend?