Final Company manufactures a single product that sells for $45 per unit. Variable production costs are $13 and variable selling costs are $7 per unit. Annual fixed costs include $263,000 administrative costs, $196,000 manufacturing overhead, and $291,000 selling costs. Required: 1. Refer to the original data. Assume that the company sold 40,000 units last year. Prepare the contribution approach income statement. a. b. Compute the degree of operating leverage. C. If sales drop to 35,000 units next year, what will be the % change in operating income? 2. Refer to the original data. Assume that the company sold 40,000 units last year. The management is thinking of increasing the selling price by $4 and increasing commissions per unit sold by $2 instead of paying $30,000 flat salaries to the sales force. The management is also thinking of using less quality materials and less skilled workers, decreasing production costs per unit by $3, so that a production supervisor paid $75,000 annually must be hired. If the changes are applied, how many units will have to be sold next year to earn the same operating income as last year? Refer to the original data. Assume that the company sold 30,000 units last year. The sales manager wants to decrease the selling price by 20%, use higher quality inputs that will increase production costs by $6 per unit, decrease the sales commissions by $4 per unit sold, and to open a new store which will increase annual rent, insurance and salaries costs by $355,000. She thinks that this move, combined with some increase in advertising, would cause annual sales to triple. By how much could advertising be increased with profits remaining unchanged? Use the incremental analysis approach; do not prepare an income statement. 3.