Lorge Corporation has collected the following information after its first year of sales. Sales were $1,700,000 on 85,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $710,600; direct labor $270,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $322,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

The company is considering a purchase of equipment that would reduce its direct labor costs by $100,000 and would change its manufacturing overhead costs to 30% variable and 70% fixed (assume total manufacturing overhead cost is $322,000, as above). It is also considering switching to a pure commission basis for its sales staff. This would change selling expenses to 90% variable and 10% fixed (assume total selling expense is $250,000, as above). Compute (1) the contribution margin and (2) the contribution margin ratio, and recompute (3) the break-even point in sales dollars. (Round contribution margin ratio to 2 decimal places, e.g. 25.25 and all other answers to o decimal places, e.g. 2,520. Use the current year numbers for calculations.) 1. Contribution margin 2. Contribution margin ratio 3. Break-even point