AFG communications, based out of Waterloo Ontario, is a small but growing manufacturer of business class network routers. Currently they produce two main types, Model A and the more expensive variant, Model B.

The company has a capacity of producing 800 Model A routers per month and currently produces 450 every month which they sell to small computer stores in eastern provinces. The companys expenses are as follows: $6000 per month lease of production facility, salaries of $10500 per month and other expenses of $3000 per month. Production of each router costs AFG $10 in materials per router, $15 in labour per router and $10 per router for R&D. They sell their routers for $125.

1. What are the FC? $ ---------

2. What are the TVC? $ _______

3. What is the break-even in units? ______

4. What is the contribution margin? $ _______

5. What is the contribution ratio? % ______

6. How much net income per month would be earned at the current level of production? $ ________

7. What percent of the facility is utilized? ________

AFG has decided to increase its production from the current 450 per month level to 700 per month while at the same time lowering its selling price to $105.

8. How would this change the companys net income? $ __________

At the selling price of $105, a chain store wanted to purchase an additional 750 units per month on a regular basis. AFG expanded the facility by renting additional space. This increase their fixed cost by 20% and doubled their capacity.

9. What is the new FC? $ ______

10. What would be the companys net income per month it were operating at 100% of the new facilitys capacity? $ _____