2. Finch Corporation sells hammocks; variable costs are $75 each, and the hammocks are sold for $137 each. Finch incurs $377,200 of fixed operating expenses annually.

Required

A.

Finch is considering implementing a quality improvement program. The program will require a $9 increase in the variable cost per unit. To inform its customers of the quality improvements, the company plans to spend an additional $12,350 for advertising. Assuming that the improvement program will increase sales to a level that is 5,400 units above the amount computed in Requirement a, prepare a budgeted income statement using the contribution margin format.

FINCH CORPORATION
Income Statement
Sales
Variable cost
Contribution margin
Fixed cost
Net income

B.

Determine the new break-even point in units and sales dollars as well as the margin of safety percentage, assuming that the quality improvement program is implemented. (Round intermediate calculations to nearest whole number. Round "Margin of safety" answer to 1 decimal place. (i.e., .234 should be entered as 23.4))

Break-even point in units
Break-even point in sales dollars
Margin of safety		%