Cost-volume-profit - 22 minutes

Calvin Ltd.s projected contribution-format income statement for the upcoming year is as follows:

Sales (8,000 units)	$280,000
Variable expenses	112,000
Contribution margin	168,000
Fixed expenses	90,000
Net operating income	$78,000

Required:

a) Calculate the companys margin of safety in dollar terms

b) The companys manager thinks that a change to the production process will increase profitability. The managers plan would increase fixed expenses by $20,000. Variable expenses would decrease by 5% and sales are expected to increase by 10%. What is the net dollar advantage or disadvantage of this change?

c) Refer to the original data, the company expects to increase the salaries of its direct labour workforce, which will increase variable expenses by 10%. The manager wants to keep the same contribution margin ratio as the original data. What sales price will need to be charged to keep the same contribution margin ratio?