Problem 7-53

answer to the nearest whole unit.) xed costs by $23,500 by reducing the amount of Ing time needed. How many units must be sold to break even in this Tojected income for the coming year, segmented by product line, follows: even Sales (203,000 units @ $70) Total variable cost Contribution margin Total fixed cost Operating income $14,210,000 8,120,000 $ 6,090,000 4,945.500 $ 1,144,500 3. CONCEPTUAL CONNECTION How does the reduction in fixed cost affect the break- n point? Operating income? Margin of safety? Problem 7-53 Contribution Margin, Break-Even Units, Break-Even Sales, Margin of Safety, Degree of Operating Leverage Aldovar Company produces a variety of chemicals. One division makes reagents for laborato- ries. The division's projected income statement for the coming year is: Problem 7-54 Multiple-Product Analysis, Changes in Sales Mix, Sales to Earn Required: 1. Compute the contribution margin per unit, and calculate the break-even point in units. (Note: Round answer to the nearest unit.) Calculate the contribution margin ratio and use it to calculate the break-even sales revenue. (Note: Round contribution margin ratio to four decimal places, and round the break-even sales revenue to the nearest dollar.) 2. The divisional manager has decided to increase the advertising budget by $250,000. This will increase sales revenues by $1 million. By how much will operating income increase or decrease as a result of this action? 3. Suppose sales revenues exceed the estimated amount on the income statement by $1,500,000. Without preparing a new income statement, by how much are profits underestimated? 4. Compute the margin of safety based on the original income statement. 5. Compute the degree of operating leverage based on the original income statement. If sales revenues are 8% greater than expected, what is the percentage increase in operating income? (Note: Round operating leverage to two decimal places.) Target Operating Income Pasu Company produces two types of sleds for playing in the snow: basic sled and aerosted. The Continued)