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Chapter 3 Homework Directions: All work should be completed in Excel using cell references and formulas. No credit will be given if work is not completed in Excel, use of formules and cell references. Maximus Company manufactures and sells telephones for high electromagnetic environments. The company's contribution format income statement for the most recent year is below: Sales 20,000 units) Variable Expenses Contribution Margin Fixed Expenses Net Operating Income Total $1.200.000 900.000 $300,000 240,000 $60,000 Per Unit $60 45 $15 Percent of Sales 100% 7% 296 Management is anxious to increase the company's profit and has asked for an analysis of a number of Items. 1. Compute the company's CM ratio and variable expense ratio. 2. Compute the company's break-even point in both unit sales and dollar sales. Use the equation method. 3. Assume the sales increase by $400,000 next year. If cost behavior patterns remain unchanged, by how much will the company's net operating income increase? Us the CM ratio to compute your answer. 4. Refer to the original data. Assume next year management want the company to earn a profit of at least $90,000. How many units will have to be sold to meet this target profit? S. Refer to the original data. Compute the company's margin of safety in dollar and percentage 6. a. Compute the company's degree of operating leverage at the present level of sales. (original data) b. Assume that through more intense effort by the sales staff, the company's sales increase 8% next year. By what percentage would you expect net operating income to increase? Use the degree of operating leverage to obtain your answer. c. Verify your answer in b by preparing a new contribution format income statement showing an 8% increase in sales. 7. In an effort to increase sales and profits, management is considering the use of a higher quality speaker. This speaker would increase variable cost by S3 per unit, but management could eliminate one quality inspector who is paid $30,000 per year. The sales manager estimates that the new speaker would increase annual sales by at least 20% a. Assuming that changes are made as described above, prepare a projected contribution format income statement for next year. Show data on a total, per unit, and percentage basis. b. Compute the company's new break-even point in unit sales and dollar sales. Use the formula method. c Would you recommend the changes be made