Northern Precious Stones Ltd. (NPS) is a precious stones wholesaler. You are the chief financial officer and you presented the following budgeted income statement, based on expected unit sales of 10,000, for 2021:

Sales.$12,000,000

Cost of goods sold (100% variable)..9,000,000

Selling and administrative expenses:

Sales agents commissions (100% variable) 1,200,000

Other (100% fixed)750,000

Income from operations..$1,650,000

The corporate income tax rate is 25%.

During the annual meeting with company managers to review the budget, the following comments were made:

• The marketing director stated that their main competitor just went bankrupt. He thinks that even if NPS raises its selling price by 8%, overall units sold should increase by 4%.
• The purchasing manager indicated that he expects suppliers will increase their sales prices by 9.0%.
• The warehouse manager stated that NPS needs to purchase additional warehouse equipment totaling $80,000. It is expected to have an estimated useful life of 5 years with no salvage value at the end of the 5 years.

Required: SHOW ALL YOUR CALCULATIONS.

1. Calculate the break-even point in sales dollars based on the budget that was presented at the meeting.
2. Calculate the break-even point in sales dollars if you decides to make the changes suggested by the other managers.
3. Based on the original budget, calculate the sales dollars required if the company wants to earn income after tax that would be 10% higher the income after tax in your original budget.
4. What would happen to a firms BEP in units if the unit selling price and unit variable costs increased by the same amount. (Answer in words, not numbers).
5. What does the margin of safety represent?