KML Enterprises sells clocks for $100 each and expects variable product costs to be $70 per unit with total fixed costs of $150,000. (Base Case)

1. a) Calculate the Contribution Margin Ratio (3pts).

2. b) Determine the break-even sales units of the company. (3pts)

3. c) What level of sales dollars should the company expect if KML wants to earn an operating profit of

   $78,000? (6pts)

4. d) Starting from base case, if KML wants to realize $124,500 in operating profit, what must the minimum

   sales price, per unit, be if they produce and sell 15,000 units and there is no change in variable cost per

   unit? (7.5pts)

5. e) Starting from the base case scenario, the sales manager is convinced that sales would increase from

   8,500 to 11,500 units if the company simply replaces $60,000 of fixed cost for the sales rep with a sales

   commission of $12 per unit sold. Should the company make the change? Justify your answer. (7.5pts)

6. f) The company decided to reduce the base case sales price by 10% because of stale inventory. What is the

   minimum number of units the company must produce and sell to break even, given the base case

   variable cost structure? (6pts)

7. g) The company believes they can produce and sell more but they would have to rent additional warehouse

   space for $25,000 per year. Using the base case scenario, how many more units would they have to sell to justify them renting the additional space? (4.5pts)