Problem: 1

Woodley Corporation management has budgeted the following amounts for its next fiscal year:

Total fixed expenses	$500,000
Sale price per unit	$1,000
Variable expenses per unit	$600

Requirements:

1. If Woodley Corporation can reduce fixed expenses by $20,000, how will break-even sales in units be affected?

2. If Woodley Corporation spends an additional $15,000 on advertising, sales volume should increase by 1,000 units. What effect will this have on operating income?

3. If Woodley Corporation can reduce fixed expenses by $50,000, by how much can variable expenses per unit increase and still allow the company to maintain the original break-even sales in units?

4. If fixed expenses increase by 20%, to maintain the original break-even sales in units, what would be the sale price per unit have to be?

Problem: 2

Happy Feet hiking socks have variable cost of $6 per pair which are then sold for $10 per pair. Monthly fixed costs are $18,000; current sales are 12,000 pairs per month.

Required:

1. Compute the break-even sales in units.

2. Compute ABC's margin of safety in units and sales dollars.

3. Compute ABC's margin of safety as a percentage.

4. Compute ABC's operating leverage factor.

5. Compute ABC's % of operating income decline if sales fall by 20%.