Blue company has prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 to 1,500 units):

Sales

$ 20,000

Variable expenses

12,000

Contribution margin

8,000

NOTE: Use the amounts in the original fact pattern to the left as your basis for the questions below.

Fixed expenses

6,000

Net operating income

$ 2,000

Questions:

1. What is the contribution margin per unit?

2. What is the contribution margin ratio?

3. What is the variable expense ratio?

4. If sales increase to 1,001 units, what would be the increase in net operating income?

5. If sales decline to 900 units, what would be the net operating income?

6. If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

7. If the variable cost per unit increases by $1, spending on advertising increases by $1,500, and unit sales incrase by 250 units, what would be the net operating income?

8. What is the break-even point in unit sales?

9. What is the break-even point in dollar sales?

10. How many units must be sold to achieve a target profit of $5,000?

11. What is the margin of safety in dollars?

12. What is the degree of operating leverage?