KinGPin Company manufacturers and sells a specialized cordless ear buds. The company's contribution format income statement for the recent year is:

Sales(40,000 units @ $50 per unit) $2,000,000

Variable Expenses ($30 per unit) 1,200,000

Fixed Expenses 500,000

Required:

1) Compute the company CM ratio and variable expense ratio

2) Compute the company's break even point in both unit sales and dollar sales

3) Assume that next year management wants the company to earn a profit of at least $540,000. How many units will have to be sold to meet this target profit

4) Refer to the original data. Compute the company's margin of safety in both dollar and percentage form.

5) Compute the company's degree of operating leverage at the present level of sales

6) Assume the company sales increase by 8% next year through a more intense effort by the sales staff, by what percentage would you expect net operating income to increase? Use the degree of operating leverage to obtain your answer

7) In an effort to increase sales and profits, management is considering the use of a high quality ear bud. The higher quality ear bud would increase variable costs by $5 per unit, but management could eliminate one worker who is paid a salary of $60,000 per year. The sales manager estimates that the higher-quality ear bud would increase annual sales by at least 15%

a) Assuming that changes are made as described above, compute the company's new break even point in both unit sales