CVP Questions: Break-Even Point; Cost Structure; Target Sales [LO5-1, LOS-3, LOS-4, LO5 5,LOS-6, LOS-8 Jones Co. manufactures mugs. The company has a mug that sells for $36. At present, the mugs are manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $25.20 per mug, of which 70% is direct labor cost. Last year, the company s old 55,000 of thes e mugs, with the following results: Sales (55,000 mugs) Variable 1,980,000 $1,386,000 594,000 540,000 54,000 margin Fixed expenses Net operatin Req 1 a. Compute last year's CM ratio and Break-even in units: b. Compute last year's degree of operating Based on the degree of operating leverage calculated above, if sales increased by 296, what would be percent change in net income? c. d. Create an updated Contribution Margin Income statement to prove your answer to part c. Req 2 Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $2.16 per mug. If this change takes place and the selling price per mug remains constant at $36.00, what will be next year's CM ratio and the break-even point in mugs? Req 3 Refer to the data in (2) above. Ifthe expected change in variable expenses takes place, how many mugs will have to be sold next year to earn the same net operating income, 554,000, as last year? Req5 Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per mug by 30%, but it would cause fixed expenses per year to increase by 80%. If the new plant is built, what would be the company's new CM ratio and new break-even point in mugs? 4 5