coi LEARNING OBJECTI 2-4, 2-5, 2-6, 2-7 Company prepared the following contribution format income statement based on a sales vol- of 1.000 units (the relevant range of production is 500 units to 1.500 units): Sales Variable expenses. Contribution margin Fixed expenses Net operating income. $20,000 12.000 8,000 6.000 $ 2,000 Required: (Answer each question independently and always refer to the original data unless instructed otherwise.) 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 S1, spending on advertising increases by $1,500, and unit sales increase 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? What is the margin of safety percentage? 12. What is the degree of operating leverage? 13. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in sales? 14. Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $6,000 and the total fixed expenses are $12,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? 15. Using the degree of operating leverage that you computed in the previous question, what is the estimated percent increase in net operating income of a 5% increase in sales? Loss Pice decreases by $1.50 per unit and Ul units sold increases by 3. What is the revised net operating income if the selling price increases by S1.50 per unit, fixed expenses increase by $20,000, and the number of units sold decreases by 5%? 4. What is the revised net operating income if the selling price per unit increases by 12%, vari- able expenses increase by 60 cents per unit, and the number of units sold decreases by 10%? $8.000 $12.000 $110.000 ase situation et Operating EXERCISE 2-14 Break-Even and Target Profit Analysis L02-3, L02-4, L02-5, L02-6 Lindon Company is the exclusive distributor for an automotive product that sells for $40 per unit and has a CM ratio of 30%. The company's fixed expenses are $180,000 per year. The company plans to sell 16,000 units this year. Required: 1. What are the variable expenses per unit? 2. What is the break-even point in unit sales and in dollar sales? 3. What amount of unit sales and dollar sales is required to attain a target profit of $60,000 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4 per unit. What is the company's new break-even point in unit sales and in dol- lar sales? What dollar sales is required to attain a target profit of $60,000? Income (Loss) $7,000 ? $20,000 $(5,000) and Sure EXERCISE 2-15 Operating Leverage L02-1, LO2-8 Magic Realm, Inc., has developed a new fantasy board game. The company sold 15,000 games last year at a selling price of $20 per game. Fixed expenses associated with the game total $182,000 per year, and variable expenses are $6 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contractor. Required: 1. Prepare a contribution format income statement for the game last year and compute the degree of operating leverage. 2. Management is confident that the company can sell 18,000 games next year (an increase of 3.000 games, or 20%, over last year). Given this assumption: age increase in net operating income for next year? ear? (Do not prepare an
