Part 1:

Downtown Industries recently sold 70,000 units, generating sales revenue of $4,900,000. The company's variable cost per unit and total fixed cost amounted to $20 and $2,800,000, respectively. Management is in the process of studying the dollar impact of various transactions and events, and desires answers to the following independent cases:

Case no. 1: Management wants to lower the firm's break-even point to 52,000 units. If all other costs remain constant, what must happen to fixed costs to achieve this objective?

Case no. 2: The company anticipates a $2 hike in the variable cost per unit. If all other costs remain constant and management desires to maintain the firm's current break-even point, what must happen to Downtown's selling price? If selling price remains constant, what must happen to the firm's total fixed costs?

Required:

A. Answer the two cases raised by management.

B. Determine the impact (increase, decrease, or no effect) of the following operating changes on the items cited:

1. An increase in variable selling costs on income.

2. A decrease in direct material cost on the unit contribution margin.

3. A decrease in the number of units sold on the break-even point.

Part 2:

The PowerClean Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the "Snooper" are given below, based on sales of 40,000 units.

Sales revenue $1,600,000

Less: Cost of goods sold 1,120,000

Gross margin $480,000

Less: Operating expenses 100,000

Income $380,000

Cost of goods sold consists of $810,000 of variable costs and $310,000 of fixed costs. Operating expenses consist of $30,000 of variable costs and $70,000 of fixed costs.

Required:

A. Calculate the break-even point in units and sales dollars.

B. Calculate the safety margin (in dollars).

C. PowerClean received an order for 6,000 units at a price of $25.00. There will be no increase in fixed costs, but variable costs will be reduced by $0.54 per unit because of cheaper packaging. Determine the projected increase or decrease in profit from the order, assuming there are no opportunity costs.

Part 3:

Calle Company is studying the impact of the following:

1. An increase in sales price.

2. An increase in the variable cost per unit.

3. An increase in the number of units sold (note: each unit produces a $6 contribution margin).

4. A decrease in fixed costs.

5. A proposed change in the method of compensation for salespeople, away from commissions based on gross sales dollars and toward higher monthly salaries.

Required:

Determine the impact of each of these operating changes on Calle's per-unit contribution margin and break-even point by completing the chart that follows. Your responses should be Increase (INC), Decrease (DEC), No Effect (NE), or Insufficient Information to Judge (II).

Per-Unit Contribution Margin || Break-Even Point

1. ||

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2. ||

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3. ||

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4. ||

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5.