Collegiate Canvas Co. currently makes and sells two models of a backpack. Data applicable to the current operation are summarized in the following columns labeled Current Operation. Management is considering adding a Value model to its current Luxury and Economy models. Expected data if the new model is added are shown in the following columns labeled Proposed Expansion:

	Current Operation							Proposed Expansion
	Luxury			Economy				Luxury			Economy			Value
Selling price per unit	$	23		$	14			$	23		$	14		$	16
Variable expenses per unit		9.2			7.5				9.2			7.5			9.5
Annual sales volumeunits		10,000			20,500				6,500			17,500			9,000
Fixed expenses for year	Total of $68,000							Total of $83,000

Required:

1. Calculate the company's current total contribution margin and the current average contribution margin ratio.
2. Calculate the companys current amount of operating income.
3. Calculate the company's current breakeven point in dollar sales.
4. State why the company might incur a loss, even if the sales amount calculated in part c was achieved and selling prices and costs didn't change.
5. Calculate the company's total operating income under the proposed expansion.
6. Based on the proposed expansion data, would you recommend adding the Value model?
7. Would your answer to part f change if the Value model sales volume were to increase to 9,700 units annually and all other data remained the same?

• Required A
• Required B
• Required C
• Required D
• Required E
• Required F
• Required G