Cabrera Company produces a variety of chemicals. One division makes reagents for laboratories. The division's projected income statement for the coming year is:

Sales (384,000 units @ $50) $19,200,000

Less: Variable expenses 13,440,000

Contribution margin 5,760,000

Less: Fixed expenses 3,000,000

Operating income $2,760,000

Required:

1.Determine the contribution margin per unit, and the BEP in units. Calculate the contribution margin ratio and the break-even sales revenue.(Note:Round contribution margin ratio to single significant digit, and round the break-even sales revenue to the nearest dollar.)

Unit contribution margin =

Break-even point in units =

Contribution margin ratio =

Break-even sales revenue =

2.The divisional manager has decided to increase the advertising budget by $300,000. This will increase sales revenues by $3 million. By how much will operating income increase or decrease as a result of this action? Use your answers from part 1 to determine the amount.

= $?

Will it increase or decrease?

3.Suppose sales revenues exceed the estimated amount on the income statement by $945,000. Without preparing a new income statement, by how much are profits underestimated? Use your answers from part 1 to determine the amount.

= $?

4.Conceptual Connection: Why can we take the shortcut of simply focusing on the increased sales revenue to determine increased profitability?

Any increase in profit will automatically add the:

Contribution Margin or the Gross Margin

of those sales to profit. The fixed costs do not change.

5.Determine the margin of safety based on the original income statement.Round your answer to the nearest dollar.

= $?