James Ltd manufactures 32L convection microwave ovens. Unit data for convection microwave oven model are as follows:

Convection

Selling price $210

Variable costs and expenses

Direct materials 45

Direct labour 25

Manufacturing overhead 30

Selling and administrative 26

Total variable costs and expenses $126

The fixed costs are: manufacturing overhead $20 300, and selling and administrative expenses $9100.

Required:

(a) Calculate the contribution margin ratio for the convection model. (3 Marks)

(b) Calculate the break-even point in dollars for the convection model. (3 Marks)

(c) (i) Calculate the margin of safety ratio assuming that the company expects to sell 520 microwave ovens from the convection model. (2 Marks)

(ii) Discuss how managers of Richards Ltd use this margin of safety ratio information to manage the profitability of the convection model? (4 Marks)