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Dreamer Company has provided the following data from the last year: Required: Sales (9,000 units) $720,000 Variable expenses 324,000 Contribution margin 396,000 Fixed expenses
Dreamer Company has provided the following data from the last year: Required: Sales (9,000 units) $720,000 Variable expenses 324,000 Contribution margin 396,000 Fixed expenses 250,000 Operating income $146,000 1. Calculate the break-even sales in units. (2 marks) 2. Calculate the margin of safety in units. (2 marks) 3. Calculate the company's degree of operating leverage. Round your answer to one decimal place. (2 marks) 4. Use the operating leverage calculated in part 3 to calculate the percentage increase in operating income if sales increase by 30%. (1 mark) 5. How many units of sales are needed to reach a before-tax operating profit of $175,000? (2 marks) 6. Prepare an incremental analysis to calculate the dollar impact on operating income of having a $45,000 advertising campaign to increase sales by 10%. Should the company proceed with this course of action? Why? (3 marks)
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