1.TLK Ltd. manufactures small size fans to be used in load shedding areas. Each fan has a rechargeable battery and a built in charging circuit. TLK sells a fan for $120. The annual sale is 30,000 fans. Variable and fixed cost data is given below:

Variable expenses$84 per fan

Fixed expenses $900,000 per year

Required:

A.Prepare contribution margin income statement and compute the degree of operating leverage.

B.Next year the sales are expected to increase by 7,500 fans. Compute (a) the expected percentage increase in net operating income (b) expected increase in net operating income and (c) expected total net operating income for the next year.

2.Contribution Margin Income Statement of a single product company

Total

Per unit

Sales

$1,200,000

$80

Less variable expenses

$840, 000

$56

Contribution Margin

360,000

$24

Less fixed expenses

300,000

Net Operating income

$60,000

Required:

1.Calculate break-even point in units and dollars.

2.What is the contribution margin at break-even point?

3.Compute the number of units to be sold to earn a profit of $36,000.

4.Compute the margin of safety using original data.

5.Compute CM ratio. Compute the expected increase in monthly net operating if sales increase by $160,000 and fixed expenses do not change.