Problem 6-2A (Video) (Part Level Submission) Lorge Corporation has collected the following information after its first year of sales. Sales were $2,400,000 on 120,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $1,280,800; direct labor $250,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $336,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

(a)

	Your answer is correct.

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(b)

	Your answer is correct.

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(c)

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(d)

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(e)

The company is considering a purchase of equipment that would reduce its direct labor costs by $110,000 and would change its manufacturing overhead costs to 30% variable and 70% fixed (assume total manufacturing overhead cost is $336,000, as above). It is also considering switching to a pure commission basis for its sales staff. This would change selling expenses to 90% variable and 10% fixed (assume total selling expense is $250,000, as above). Compute (1) the contribution margin and (2) the contribution margin ratio, and recompute (3) the break-even point in sales dollars. (Round contribution margin ratio to 4 decimal places, e.g. 0.2527 and all other answers to 0 decimal places, e.g. 2,520. Use the current year numbers for calculations.)

1.		Contribution margin		$
2.		Contribution margin ratio
3.		Break-even point		$

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