Break-Even, After-Tax Target Income, Margin of Safety, Operating Leverage

Rahm Company produces a single product. The projected income statement for the coming year, based on sales of 160,000 units, is as follows:

Sales	$2,000,000
Less: Variable costs	1,400,000
Contribution margin	$600,000
Less: Fixed costs	450,000
Operating income	$150,000

Required:

1. Compute the unit contribution margin and the units that must be sold to break even. Round your answer for the unit contribution margin to two decimals, if necessary.

Unit contribution margin	$fill in the blank 1
Break-even units	fill in the blank 2	units

Suppose that 10,000 units are sold above the break-even point. What is the profit? $fill in the blank 3 above break-even

2. Compute the contribution margin ratio and the break-even point in dollars. Round your answer for the contribution margin ratio to two decimals, if necessary. (Express as a decimal-based amount rather than a whole percent.)

Contribution margin ratio	fill in the blank 4
Break-even sales	$fill in the blank 5

Suppose that revenues are $87,500 greater than expected. What would the total profit be? $fill in the blank 6

3. Compute the margin of safety in sales revenue. $fill in the blank 7

4. Compute the operating leverage. fill in the blank 8

Compute the new profit level if sales are 20 percent lower than expected. $fill in the blank 9

5. How many units must be sold to earn a profit equal to 12 percent of sales? fill in the blank 10 units

6. Assume the income tax rate is 30 percent. How many units must be sold to earn an after-tax profit of $180,000? fill in the blank 11 units