Problem 1: CVP Analysis and Break-even Volvos company manufactures and sells a specialized cordless telephone for high electromagnetic radiation environments. The company's contribution format income statement for the most recent year is given below: Percent of Total Per unit Sales Sales (20,000 units) $1,200,000 $60 100% Variable Expenses 900000 45 ? Contribution Margin 300000 Fixed expenses 240000 Net Operating Income $60,000 15 ? Management is anxious to increase the company's profit and has asked for an analysis of a number of items. Required: 1. Compute the company's Contribution Margin (CM) and the variable expense ratio. 2. Compute the company's break-even point in both units and dollars. 3. Assume that sales increase by $400,000 next year. If cost behavior patterns remain unchanged, by how much the company's net operating income increase? Use the CM ratio to compute your answer. 4. Refer to the original data. Assume that the next year management, wants the company to earn a profit of at least 590,000 How many units will have to be sold to meet this target profit? 5. To increase sales and profits, management is considering the use of a higher quality speaker. The higher quality speaker could increase variable costs by $3 per unit, but management could eliminate one quality inspector who is paid a salary of $30,000 per year. The sales manager estimates that the higher quality speaker would increase annual sales by at least 20% a. Assuming that changes are made as described above, prepare a projected contribution format statement for next year. Show data on a total, per unit, and percentage basis as shown above in the "the company's contribution format Income statement for the most recent year". b. Compute the company's break-Oeven point in both units and dollars of sales. Would you recommend that the change be made and why? Problem 2: Cost Classification Classify each of the following cost as either variable or fixed by placing an X in the appropriate column: Variable Fixed Cost Measure of Activity 1 The cost of small glass plates used for lab tests in a hospital Number of lab tests performed 2 A boutique Jewelry store's cost of feasing retail space in a mall Dollar sales 3 Top management salaries at FedEx Total sales) 4 Electrical costs of running production equipmentata Toyota factory Number of vehicles produced 5. The cost of insuring a dentist's office against fire (Patient visits) 6 The cost of commissions paid to salespersons at Honda dealer Total sales 7 The cost of heating the intensive care unitat Swedish Hospital (Patient-days & The cost of batteries installed in trucks produced at GM factory Number of trucks produced) 9 The salary of a university professor Number of students taught by the professor The costs of cleaning supplies used at a fast-food restaurant to clean the kitchen and dining areas at the end of 10 the day Number of customers served