Problem #1 CVP analysis A company sells two products: a standard model and a deluxe model. The standard model sells for $50 and has a contribution margin ratio of 40% (CM per unit is $20). The deluxe model sells for $100 and has a contribution margin ratio of 50% (CM per unit is $50). Last year, the company sold 5000 standard units and 2500 deluxe units. There is $200,000 of cost that is "fixed" in the sense that it does not vary with the number of units produced. However, $100,000 of this cost is direct fixed cost: $20,000 is direct fixed cost for Standard, and $80,000 is direct fixed cost for Deluxe. The remaining $100,000 is allocated fixed cost. Standard (5000) # Deluxe (2500) # Total Sales 250,000 250.000 100 500,000 VariableCost 150,000 30 125,000 50 275,000 Contribution Margin 100,000 20 125,000 50 225,000 Direct Fixed Costs 20,000 80,000 100,000 Segment Margin Allocated/Common Fixed 100,000 Pre-Tax Profit 25,000 1. If the sales mix stays the same as last year, how many standard and deluxe units would have to be sold next year in order to earn $42,000 after taxes of 40%? 2. If the sales mix stays the same as last year, what sales ($) from standard and deluxe models would have to be in order to earn $42,000 after taxes of 40%? 3. Assume that the company decided to eliminate the deluxe model with the hope of increasing their profit by $5,000. Once again, they were disappointed to find that their expected results did not materialize. In the space below, compute the effect on profit of eliminating the deluxe model and briefly explain the flaw in the company's plan