Problem 1:

Dodge Industries incurs the following costs during the 2019:

Depreciation of machinery	$15,000
Direct labor	200,000
Direct materials	60,000
Executive salaries	100,000
Insurance	2,000
Rent on building	50,000
Factory supplies	20,000
Vehicle lease cost	5,000

The company sells one product for $10. During 2019, total sales revenue was $800,000. Dodge determined that only the direct production costs and factory supplies are to be classified as variable costs; all other costs are classified as fixed costs.

Required:

Using Excel, prepare a spreadsheet that addresses the following:

1. Determine the unit contribution margin.

2. Determine the contribution margin ratio.

3. The company is considering an expansion that will increase sales volume by 20%. The following changes would occur of the plan is implemented:

• An additional machine would add $5,000 of annual depreciation.

• Rent and insurance would each increase by 25%, as additional factory space would be needed.

• Due to bulk purchasing and economies of scale, the per unit cost of direct materials would decline by 20%.

Nothing else would change.

Prepare a contribution margin income statement, with two columns that compare the current situation without expansion and the situation if the expansion plan is implemented.

4. The CEO is hoping this plan will increase pretax income by 20% so she can increase her own salary.

Clearly state at the end of it whether the CEOs expectations will be achieved if the company expands. Will pretax income increase by 20%? Show the calculation.