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

1. Compute the break-even point in units and sales dollars (round to the nearest unit and dollar) for the next year.
2. The company has a target net income of $710,000. What is the required sales in dollars for the company to meet its target?
3. 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).