Need detailed explanation in Number 6.

Step-by-step explanation

1

(a)

The variable cost per unit=8,190,000/ 450,000 units

Variable cost = $18.20 per unit

(b).

The contribution margin per unit=$3,510,000/ 450,000 units

CM = $7.80 per unit

(c).

The contribution margin ratio =CM/ sales = $3,510,000/ $11,700,000*100% = 30%

(d).

The break-even point in unit= Fixed costs / Contribution margin per unit = 2,254,200/7.80 = 289 000units

1(e).

The break-even point in sales dollar= .Fixed costs / Contribution margin ratio = 2,254,200/ 0.30= $7 514 000

2.

Using the formula

Target income units = ( Target income + Fixed costs)/ Contribution margin per unit

Units to be sold = ( 2,254,200+ 296 400) / 7.80=327 000 units

3.

The additional operating income= Contribution margin ratio * Additional sales

Additional income =0.30 * $50,000 =$15 000

4.

The margin of safety in units= Actual units sold - Break even units .

Margin of safety in units= 450 000- 289 000= 161 000 units

Margin of safety in sales dollars= MOS units * Sales price = $161 000* 26 = $4 186 000

5.

The degree of operating leverage= Contribution margin/ Operating income

DOL= 3510 000/ 1 255 800=2.8

6.

The new operating income = Current income * (1+ (Degree of leverage * Increase in sales )

New operating income = sales are 10% higher than expected= 1255 800* (1+(1.1*2.7950)) =

=$1 606 800