Control$2.$ Change all of the numbers in the data area of your worksheet so that it looks like this:

Unit Sales $=70,000$ units

Selling Price Per Unit $=$ $$20$ Per Unit

Variable Expenses Per Unit$=$ $$8$ Per Unit

Fixed Expenses $=$ $$672,000$

If your formulas are correct, you should get the correct answers to the following questions.

$($a$)$ What is the break$-$even in dollar sales?

$($b$)$ What is the margin of safety percentage?

$($c$)$ What is the degree of operating leverage? $($Round your answer to $2$ decimal places.$)$

$3.$ Using the degree of operating leverage and without changing anything in your worksheet, calculate the percentage change in net operating income if unit sales increase by $20\%.$

$4.$ Confirm your calculations in Requirement $3$ above by increasing the unit sales in your worksheet by $20\%$ so that the Data area looks like this:

Unit Sales $=84,000$ Units

Selling Price Per Unit $=$ $$20$ per Unit

Variable Expenses Per Unit $=$ $$8$ Per Unit

Fixed Expenses $=$ $$672,000$

$($a$)$ What is net operating income? $($Negative amount should be indicated by a minus sign.$)$

$($b$)$ By what percentage did the net operating income increase?

$5.$ Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the $1930$s$.$ The retro$-$look cycle would be sold for $$13,000$ and at that price, Thad estimates $100$ units would be sold each year. The variable cost to produce and sell the cycles would be $$9,100$ per unit. The annual fixed cost would be $$370,500.$

a$.$ What is the break$-$even in unit sales?

b$.$ What is the margin of safety in dollars?

c$.$ What is the degree of operating leverage? $($Round your answer to $2$ decimal places.$)$

Thad is worried about the selling price. Rumors are circulating that other retro brands of cycles may be revived. If so$,$ the selling price for the Western Hombre would have to be reduced to $$11,600$ to compete effectively. In that event, Thad would also reduce fixed expenses to $$315,500$ by reducing advertising expenses, but he still hopes to sell $100$ units per year.

d$.$ What would the net operating income be in this situation? $($Negative amount should be indicated by a minus sign.$)$