Last year, Hever Inc. had sales of $314,000, based on a unit selling price of $100. Thevariable costper unit was $80, andfixed costswere $43,600. The maximum sales within Hever'srelevant rangeare 3,900 units. Hever Inc. is considering a proposal to spend an additional $12,000 on billboard advertising during the current year in an attempt to increase sales and utilize unused capacity.

Required:

1.Construct a cost-volume-profit chart on your own paper, indicating the break-even sales for last year. In your computations, do not round the contribution margin percentage.

Break-even sales (dollars)

Break-even sales (units)

2.Using the cost-volume-profit chart prepared in part (1), determine (a) the income from operations for last year and (b) the maximum income from operations that could have been realized during the year. In your computations, do not round the contribution margin percentage.

Income from operations

Maximum income from operations

3.Construct a cost-volume-profit chart (on your own paper) indicating the break-even sales for the current year, assuming that a noncancelable contract is signed for the additional billboard advertising. No changes are expected in the unit selling price or other costs. In your computations, do not round the contribution margin percentage.

Dollars

Units

4.Using the cost-volume-profit chart prepared in part (3), determine (a) the income from operations if sales total 3,140 units and (b) the maximum income from operations that could be realized during the year. In your computations, do not round the contribution margin percentage.

Income from operations at 3,140 units

Maximum income from operations