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		$	15			$	23		$	15		$	15
Variable expenses per unit		9.2			7.5				9.2			7.5			8.5
Annual sales volume-units		10,500			20,500				6,500			18,500			8,000
Fixed expenses for year	Total of $74,000							Total of $83,000

Required:

a. Calculate the company's current total contribution margin and the current average contribution margin ratio.

b. Calculate the companys current amount of operating income.

c. Calculate the company's current break-even point in dollar sales. (Do not round intermediate calculations.)

d. 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.

	Because sales mix might change.
	Because of increase in tax sale.
	Because fixed cost might exceed total contribution.

e. Calculate the company's total operating income under the proposed expansion.

f. Based on the proposed expansion data, would you recommend adding the Value model?

	No
	Yes

g. Would your answer to part f change if the Value model sales volume were to increase to 8,400 units annually and all other data remained the same?

	No
	Yes