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.

TotalPer 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)