Problem 8-5 Various CVP Questions: Break-Even Point; Cost Structure; Target Sales (LO1 - CC2, 3; LO2 - CC5, 6, 7, 10)

Tyrene Products manufactures recreational equipment. One of the company's products, a skateboard, sells for $37. The skateboards are manufactured in an antiquated plant that relies heavily on direct labour workers. Thus, variable costs are high, totaling $25.90 per skateboard, of which 70% is direct labour cost. Over the past year the company sold 43,000 skateboards, with the following operating results: 1,591,000 1,113,700 477,300 Sales (43,000 skateboards) Variable expenses Contribution margin Fixed expenses 277,500 Net operating income S 199,800 Management is anxious to maintain and perhaps even improve its present level of income from the skateboards Required: 1a. Compute the CM ratio and the break-even point in skateboards. (Do not round intermediate calculations. Round your answer to the nearest whole number.) Contribution margin Unit sales to break-even point skateboards 1b. Compute the degree of operating leverage at last years level of sales. (Round your answer to 2 decimal places.) 2. Due to an increase in labor rates, the company estimates that variable costs will increase by $1.85 per skateboard next year. If this change takes place and the selling price per skateboard remains constant at $37.00, what will be the new CM ratio and the new break-even point in skateboards? (Round your intermediate calculations and the "Contribution margin" answer to 2 decimal places and other answer to the nearest whole number.) Contribution margin Unit sales to break-even point skateboards