Avery Corporation has collected the following information after its first year of sales. Net sales were $2,500,000 on 100,000 units; selling expenses $400,000 (30% variable and 70% fixed); direct materials $600,000; direct labor $425,000; administrative expenses $500,000 (30% variable and 70% fixed); manufacturing overhead $525,000 (20% variable and 80% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 20% next year and the unit selling price will increase by $3. Variable costs per unit and total fixed costs will not change.

Instructions

-Compute the break-even point in units and sales dollars (round to the nearest unit and dollar) for the next year.

-The company has a target net income of $710,000. What is the required sales in dollars for the company to meet its target?

-If the company meets its target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is its margin of safety ratio? (Round to the nearest whole percentage).