Polk Company developed the following information for its product:

Per Unit

Sales price $90

Variable cost 63

Contribution margin $27

Total fixed costs $1,080,000

Instructions

Answer the following independent questions and show computations using the contribution margin technique to support your answers.

1. How many units must be sold to break even?

2. What is the total sales that must be generated for the company to earn a profit of $60,000?

3. If the company is presently selling 45,000 units, but plans to spend an additional $108,000 on an advertising program, how many additional units must the company sell to earn the same net income it is now making?

4. Using the original data in the problem, compute a new break-even point in units if the unit sales price is increased 20%, unit variable cost is increased by 10%, and total fixed costs are increased by $210,000.

2. Nunley Company estimates that variable costs will be 60% of sales and fixed costs will total $1,920,000. The selling price of the product is $10, and 600,000 units will be sold.

Instructions

Using the mathematical equation,

(a) Compute the break-even point in units and dollars.

(b) Compute the margin of safety in dollars and as a ratio.

(c) Compute net income.