Problem 2

	Total	Per Unit	Percent of Sales
Sales (40,000 units)	2,400,000	60	100%
Variable expenses	1,600,000	40	? %
Contribution margin	800,000		? %
Fixed expenses	500,000
Net operating income	300,000

1. Calculate variable expense ratio.
2. Calculate contribution margin ratio.
3. Calculate break even sales in units (show your work).
4. Calculate break even sales in Dollars.
5. How many units must be sold to make a profit of SAR 200,000.

Management is considering increasing quality of its units by spending SAR 3 more per unit in variable costs and adding a quality inspector for an additional SAR 60,000 annual fixed cost. Management believes this change will increase unit sales by 10% at the same price.

1. Calculate the new operating profit or loss.
2. Should management make the changes?