P 6-A Cost-Volume-Profit Analysis Melon Company produces a knockoff watch that sells for $40 each. Variable costs are $12 each and fixed costs are $210,000 each year. sle Follo Required: 1) What is this product's contribution margin ratio (CM %)? 2) What is this company's break-even point in sales dollars? 3) If sales increase $400,000, how much will net income increase (assuming they are operating within the relevant range and fixed costs do not change)? 4) Assume 20,000 units were sold last year and Melon Company's income statement appeared as follows. 7 $ Sales Variable expenses Contribution margin Fixed expenses Net income $ 800,000 240,000 560,000 210,000 350,000 $ a) Compute Melon Company's degree of operating leverage for last year. b) If sales are expected to increase 10% next year, by what percentage will net income increase? 5) Refer to the data at the top of this problem. a) Assume Melon sold 30,000 units last year. Prepare an income statement in contribution form. b) The president believes that a 10% reduction in sales price (which will not decrease their variable costs) and an increase of $90,000 in advertising (a fixed cost) will increase sales by 10,000 units. Prepare an income statement in contribution form. c) Would you recommend following the president's recommendations?