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Paradox, Inc. produces and markets a machinery component called a gromet. October monthly costs to produce 20,000 gromets are as follows: Manufacturing Costs per unit

Paradox, Inc. produces and markets a machinery component called a gromet. October monthly costs to produce 20,000 gromets are as follows:

Manufacturing Costs per unit
Direct materials (variable) $0.60
Direct labor (variable) 0.5
Factory overhead
- variable 0.5
- fixed 0.7
$2.30
Selling and admin expenses per unit
- variable 0.3
- fixed 0.3
Total $2.90

Paradox sells gromets for $4.00 per unit.

a. Assuming unit sales = 20,000 units, prepare a contribution income statement for the month of October (ignore income taxes).

b. Determine Paradoxs monthly:

  1. break-even point in sales units and in sales dollars.
  2. Operating leverage ratio

c. Assume Paradox reduces their selling price by $0.50/unit and the number of units sold increases by 1,000:

  1. Prepare a revised Contribution Income Statement
  2. Determine the companys new break-even point in unit sales and sales dollars.
  3. Determine the companys new operating leverage ratio.

d. Using the original facts, before part c., compute Paradoxs % change in profits, if unit sales increase by 10% .

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