1. Changes in Break-Even Points with Changes in Unit Prices :Salamanca produces and sells refrigerator magnets to be sold as novelty items by resorts. Last year, Salamanca sold 198,400 units. The income statement for Salamanca, Inc., for last year is as follows:

Sales	$992,000
Less: Variable expenses	545,600
Contribution margin	$446,400
Less: Fixed expenses	180,000
Operating income	$266,400

Required:

1.Compute the break-even point in units and in revenues.

Break-even units	__________
Break-even revenue	$__________

Compute the margin of safety in sales revenue for last year. $__________

2.Suppose that the selling price decreases by 8 percent. Will the break-even point increase or decrease? ( INCREASE OR DECREASE)

Recompute the break-even point in units. Round your answer to the nearest whole unit. ______________units

4.Can you predict whether the break-even point increases or decreases if both the selling price and the unit variable cost decrease?

Recompute the break-even point in units incorporating both of the changes in Requirements 2 and 3. Round your answer to the nearest whole unit. ______________ units

5.Assume that total fixed costs increase by $50,000. (Assume no other changes from the original data.) Will the break-even point increase or decrease?Increase or Decrease

Recompute the break-even point in units. Round your answer to the nearest whole unit. ______________units

2. ABC and CVP Analysis: Multiple Products

Good Scent, Inc., produces two colognes: Rose and Violet. Of the two, Rose is more popular. Data concerning the two products follow:

	Rose	Violet
Expected sales (in cases)	50,000	10,000
Selling price per case	$100	$80
Direct labor hours	36,000	6,000
Machine hours	10,000	3,000
Receiving orders	50	25
Packing orders	100	50
Material cost per case	$50	$43
Direct labor cost per case	$10	$7

The company uses a conventional costing system and assigns overhead costs to products using direct labor hours. Annual overhead costs follow. They are classified as fixed or variable with respect to direct labor hours.

	Fixed		Variable
Direct labor benefits	$		$200,000
Machine costs	200,000*		262,000
Receiving department	225,000
Packing department	125,000
Total costs	$550,000		$462,000

^*All depreciation

Required:

1.Using the conventional approach, compute the number of cases of Rose and the number of cases of Violet that must be sold for the company to break even. In your computations, round variable unit cost to the nearest cent and round the number of break-even packages to the nearest whole number.

Break-even cases of Rose	__________ cases
Break-even cases of Violet	__________ cases

2. Using an activity-based approach, compute the number of cases of each product that must be sold for the company to break even. In your computations, round all computed amounts to the nearest cent and round the number of break-even packages to the nearest whole number.

Break-even cases of Rose	__________. cases
Break-even cases of Violet	__________. cases