Metrolink International manufactures two products product X and product Y. Product X sells for $800 and product Y for $1200. The company sells its products through its own stores and outlets owned by various merchandising companies. Total fixed expenses of Metro International are $132,000 per month. Variable expenses and monthly sales data are given below:

Variable expenses per unit:

Product X: $480

Product Y: $240

Monthly sales in units:

Product X: 200 Units

Product Y: 80 Units

Required:

(1) Compute the break-even point in dollars and margin of safety using above information.

(2) Metro International is considering to manufacture another product product Z. The addition of the new product will not affect the fixed cost of the company. The variable expenses to manufacture and sell a unit of product Z will be $1,200. If the selling price of the new product is set at $1,600 per unit, the company expects to sell 40 units per month.

(3) From number 2, compute the new break-even point and margin of safety.

(4) The president is unable to understand the increase in break-even sales because the new product has increased the sales revenue and contribution margin without any increase in fixed costs. Explain to the president the reason for the increase in break-even.