Contribution margin, Break-even units, Break-even sales, Margin of Safety, degree of operating leverage:

aldovar company produces a variety of chemicals. One division makes reagents for laboratories. The divisions projected income statement for the coming year is:

Sales (203,000 units @ $70) $14,210,000

total variable cost 8,120,000

Contribution margin $6,090,000

Total fixed cost 4,495,000

Operating income $1,144,500

Required:

1. Compute the contribution margin per unit, and calculate the break-even point in units (Notes: round answer to the nearest unit). Calculate the contribution margin ratio and the break-even sales revenue. (Note: round contribution margin ratio to four significant digits, and round the break-even sales revenue to the nearest dollar)

2. The division manager has decided to increase the advertising budget by $250,000. This will increase sales revenue by $1 million. by how much will operating income increase or decrease as a result of this action?

3. suppose sales revenue exceed the estimated amount on the income statement by $1,500,000. without preparing a new income statement, by how much are profits underestimated?

4. Compute the margin of safety based on the original income statement.

5. Compute the degree of operating leverage based on the orginal income statement. If sales revenue are 8% greater than expected, what is the percentage increase in operating income? (Note: round operating leverage to two decimal places.