Fannell Products manufactures recreational equipment. One of the company's products, a skateboard, sells for $37.50. The skateboards are manufactured in an antiquated plant that relies heavily on direct labour workers. Therefore, variable costs are high, totalling $22.50 per skateboard. Fixed costs were $480,000 for the past year. Over the past year, the company sold 40,000 skateboards. Management is anxious to maintain, and perhaps even improve, its present level of income from the skateboards. REQUIRED: a. Compute the contribution margin ratio, the break-even point in skateboards (quantity) and the operating income for the past year. b. Compute the margin of safety at last year's level of sales. Explain to the manager what these measures mean. c. - Compute the operating leverage. ATTEMPT THE QUIZ ON BLACKBOARD (under Assignment) d. Due to an increase in labour rates, the company estimates that variable costs will increase by $3 per skateboard next year. If this change takes place and the selling price per skateboard remains constant at $37.50, what will be the new contribution margin ratio and the new break-even point in skateboards? e. Refer to your calculation in (c). If the expected change in variable costs takes place, how many skateboards will have to be sold next year to earn the same operating income as last year? f. Refer to the original data. The company is considering the construction of a new, automated plant. The new plant would reduce variable costs by 40%, but it would cause fixed costs to increase by 90%. If the new plant is built, what would be the company's new contribution margin ratio and the new break-even point in skateboards? g. If you were a member of top management, would you have been in favour of constructing the new plant? Explain your answer. The vanable expense as a ratio of sales (%) for Fannell Products are (do not include the % sign in your answer) Moving to another question will save this response. Moving to another question will save this response. The margin of safety (in units) for a budgeted sales of 40,000 units is: Moving to another question will save this response. The margin of safety (in \$) based on a budgeted sales of 40,000 units for Fannell Products is: Moving to another question will save this response. Moving to another question will save this response. estion 10 The break-even point (in Sales \$) for Fannell Products are: Moving to another question will save this response. A Moving to another question will save this response. Question 11 Due to an increase in labour rates, Fannell Products estimates that variable costs will increase by $3 per skateboard next veac Determine the iaw marain of a afety (19) Movrig to anclher question will save this response. Operatint income of $120,000. A Mowing to another questien wit save this response. Question 13 Determine the ners breakeve point (in UNITS) for fannell Prodacts Determine the nere nuegin of safesy ratio We for Fannell hrodocts a carksubmit to corrutele this assessment Question 15 Saunti in
