Part 1

The vice-president of sales and marketing, Madison Tremblay, is trying to plan for the coming year in terms of production needs to meet the forecasted sales. The board of directors is very supportive of any initiatives that will lead to increased profits for the company in the upcoming year.

Instructions

a. Waterways markets a simple water controller and timer that it mass-produces. During 2020, the company sold 350,000 units at an average selling price of $8 per unit. The variable expenses were $1,575,000, and the fixed expenses were $800,000.

• 1.What is the product's contribution margin ratio?
• 2.What is the company's break-even point in units and in dollars for this product?
• 3.What is the margin of safety, both in dollars and as a ratio?
• 4.If management wanted to increase income from this product by 10%, how many additional units would the company have to sell to reach this income level?
• 5.If sales increase by 71,000 units and the cost behaviours do not change, how much will income increase on this product?

b. Waterways is considering mass-producing one of its special-order screens. This would increase variable costs for all screens by an average of $0.71 per unit. The company also estimates that this change could increase the overall number of screens sold by 10%, and the average sales price would increase by $0.25 per unit. Waterways currently sells 491,740 screen units at an average selling price of $26.50. The manufacturing costs are $6,863,512 variable and $2,050,140 fixed. Selling and administrative costs are $2,661,352 variable and $794,950 fixed.

• 1.If Waterways begins mass-producing its special-order screens, how would this affect the company?
• 2.If the average sales price per screen did not increase when the company began mass-producing the screen, what would be the effect on the company?

SOLVE ALL PARTS WITH EXPLANATION