1.Queensland Company makes radios that sell for $40each. For the coming year, management expects fixed costs to total $163,000and variable costs to be $30.00per unit.

Calculate the break-even point in dollars using the contribution margin ratio.

Calculate the margin of safety ratio assuming actual sales are $815,000.

Calculate the sales dollars required to earn operating income of $110,000.

2.Embleton Company estimates that variable costs will be65% of sales, and fixed costs will total $856,800. The selling price of the product is $6.

Break-even point units

Break-even point$

Assuming actual sales are $3,264,000, calculate the margin of safety in dollars and as a ratio.

Margin of safety

Margin of safety ratio %

3.Alice Oritz is the advertising manager for Value Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $27,930in fixed costs to the $231,420currently spent. In addition, Alice is proposing that a10% price decrease ($35to $31.50) will produce a 20% increase in sales volume (19,000to22,800). Variable costs will remain at $14per pair of shoes. Management are impressed with Alice's ideas but are concerned about the effects that these changes will have on the break-even point and the margin of safety.

Calculate the current break-even point in units, and compare it with the break-even point in units if Alice's ideas are used.

Current break-even point units

Break-even point if Alice's ideas are used units

Calculate the margin of safety ratio for current operations and after Alice's changes are introduced.

Current margin of safety ratio %

Margin of safety ratio Alice's changes are introduced %

Prepare CVP income statements for current operations and after Alice's changes are introduced.

VALUE SHOE STORE

CVP Income Statement

Current New

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Would you make the changes suggested?

The changes

should or should not be made.