A company produces high quality sports equipment. The companys Racket Division manufactures three tennis rackets the Standard, the Deluxe, and the Pro. Selected information on the rackets is given below:

	Standard	Deluxe	Pro
Selling Price per racket	$40.00	$60.00	$90.00
Variable expenses per racket:
Production	$22.00	$27.00	$31.50
Commission (5% of selling price)	$2.00	$3.00	$4.50

All sales are through the companys own retail outlets. The Racket Division has the following fixed costs:

	Per Month
Fixed production costs	$120,000
Advertising expense	100,000
Administrative salaries	50,000
Total:	270,000

Sales, in units, over the past two months have been as follows:

(units sold)	Standard	Deluxe	Pro	Total
April	8,000	1,000	3,000	12,000
May	2,000	1,000	5,000	8,000

1. Prepare contribution income statements for April and May.

2. Compute the Racket Divisions break-even point (BEP) in dollar sales for April and May.

3. Assume that sales of the Standard racket increase by $20,000 in June. Determine the effect on net operating income (NOI). Also, assume that sales of the Pro racket increase by $20,000 during June. Determine the effect on net operating income.

4. To meet customer demand the company decides to use a higher quality material for the Pro racket starting in the month of July. This decision drives the production cost to $61.50 per unit. Prepare a contribution income statement for July assuming that the activity matches the activity level in May:

(units sold)	Standard	Deluxe	Pro	Total
July	2,000	1,000	5,000	8,000

5. Compute the Racket Divisions break-even point in dollar sales for July.

6. Assume that sales of the Pro racket increase by $20,000 in August. Determine the effect on net operating income under the new cost structure given in 4 above.