Carmichael Corporation is in the process of preparing next year's budget. The pro forma income statement for the current year is as follows:

Sales				$1,800,000
Cost of sales:
Direct materials		$250,000
Direct labor		180,000
Variable overhead		106,000
Fixed overhead		100,000		636,000
Gross profit				$1,164,000
Selling and administrative expenses:
Variable		$400,000
Fixed		350,000		750,000
Operating income				$414,000

Required:

1.What is the break-even sales revenue for Carmichael Corporation for the current year? In your calculations, carry the contribution margin ratio to two decimal places. $__________

2.For the coming year, the management of Carmichael Corporation anticipates an 8 percent increase in variable costs and a $60,000 increase in fixed expenses. What is the break-even point in dollars for next year? In your computation, round the contribution margin ratio to four decimal places. Round your final answer to the nearest dollar.(CMA adapted) $__________

2. CVP Analysis: Sales-Revenue Approach, Pricing, After-Tax Target Income

Mahan Consulting is a service organization that specializes in the design, installation, and servicing of mechanical, hydraulic, and pneumatic systems. For example, some manufacturing firms, with machinery that cannot be turned off for servicing, need some type of system to lubricate the machinery during use. To deal with this type of problem for a client, Mahan designed a central lubricating system that pumps lubricants intermittently to bearings and other moving parts.

The operating results for the firm for the previous year are as follows:

Sales	$974,880
Less: Variable expenses	534,234
Contribution margin	$440,646
Less: Fixed expenses	264,300
Operating income	$176,346

In the coming year, Mahan expects variable costs to increase by 4 percent and fixed costs to increase by 3 percent.

1.What is the contribution margin ratio for the previous year? Enter your answer as a decimal value rounded to three places. Use the rounded value in subsequent calculations. __________

2.Compute Mahan's break-even point for the previous year in dollars. Round your answer to the nearest dollar. $__________

3.Suppose that Mahan would like to see a 6 percent increase in operating income in the coming year. What percent (on average) must Mahan raise its bids to cover the expected cost increases and obtain the desired operating income? Assume that Mahan expects the same mix and volume of services in both years. In your computations, round contribution margin ratio to two decimal places (Use the rounded value in subsequent calculations) and other values to the nearest dollar. __________%

4.In the coming year, how much revenue must be earned for Mahan to earn an after-tax profit of $175,000? Assume a tax rate of 40 percent. Round intermediate calculations and your final answer to the nearest dollar. $__________