Parramatta Products. Inc., manufactures and sells a specialized cordless phone for

high electromagnetic radiation environments. The company's contribution format

income statement for the most recent years is given below.

Total Per unit % of

sales

Sales (30,000 units) $ 1,500,000 $ 50 100%

Variables expenses $ 900,000 $ 30 ?

Contribution margin $ 600,000 $ 20 ?

Fixed expenses $ 450,000

Net Operating Income $ 150,000

Management is considering to increase the company's profit and has asked for an

analysis of a number of items.

Required:

1. Compute the company's CM ratio and variable expense ratio. (5 mark)

2. Compute the company's break-even point in both units and sales dollars. Use

the equation method. (5 mark)

3. Assume that sales increase by $725,000 next year. If cost behavior patterns

remain unchanged, by how much will the company's net operating income

increase? Use the CM ratio to compute your answer. (5 mark).

4. Refer to the original data. Assume that next year management wants the

company to earn a profit at least $825,000. How many units will have to be

sold to meet this target profit? (5 mark)