Ambrose Co. is considering making some changes. If these changes are made, Fixed Costs could decrease by $60 but variable cost per unit would increase by $0.12. After analyzing the potential results of this change, Ambrose Co. decides to make the change, but to decrease the selling price of the product by $0.15 and is confident that with such a decrease in priced the company can sell 15 more units.

Given the current situation of:

Sale prices per unit $1.80

Variable cost per unit .40

Fixed Costs 400

Break Even in units 286

Break Even in dollars $515

Expected units sold 825

Now do the following:

1. Prepare a contribution margin income statement for the current situation
2. Prepare a contribution margin income statement reflecting the changes in costs only
   1. What is the break even in units and dollars in this scenario?
3. Prepare the contribution margin income statement with the changes in costs as well as the changes in sales price and quantity sold.
   1. What is the break even in units and dollars in this scenario?
4. Calculate the margin of safety in units and margin of safety percentage for each of the 3 scenarios (in requirements 1-3)
5. Calculate the operating leverage in each of the 3 scenarios
6. If in scenario 3, sales were to increase by 10%, what kind of percentage increase would Ambrose Co see in Net Income
7. Prepare the contribution margin format income statement, using scenario 3 and considering an increase in sales of 10%. Does the Net income increase as you predicted in requirement 6?