Problem 8-5 Various CVP Questions: Break-Even Point; Cost Structure; Target Sales (LO1 - CC2, 3; LO2 (C5,6,7) Tyrene Products manufactures recreational equipment. The operating results for the most recent year for one of its products, a skateboard, are presented below. Management is anxious to maintain and perhaps even improve its present level of income from the skateboards. Required: Required: 1-a. The company's break-oven point for the most recent year was 32,000 units, Compute the CM per skateboard. 1.b. Compute the selling price and variable expenses per skateboard. (Do not round intermediate calculations. Round your answers to 2 decimal places.) 1-c. Compute the number of skateboards sold in the most recent year. (Do not round intermediate calculations.) 1-d. Compute the degree of operating leverage at the level of sales that you computed in Requirement (ic). 2. Due to an increase in labour rates, the company estimates that variable expenses will increase by $3 per skateboard next year. this change takes place and the selling price per skateboard remains constant, what will be the new CM ratio and the new breakpoint in skateboards? (Do not round intermediate calculations.) 3. Refer to the data in Requirement (2) above. If the expected change in variable costs takes place, how many skateboards will have to be sold next year to earn the same net operating income, $120,000, as in the most recent year? (Do not round intermediate calculations.) 4. Refer again to the data in Requirement (2) above. The president has decided that the company may have to raise the selling price of its skateboards. If Tyrene Products wants to maintain the same CM ratio as last year, what selling price per skateboard must it charge next year to cover the increased labour costs? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 5. Refer to the original data. The company is considering the construction of a new, automated plant. The new plant would result in the contribution margin per unit increasing by 60%, but it would cause fixed costs to increase by 90%. If the new plant is built, what would be the company's new CM ratio and new break-even point in skateboards? (Do not round intermediate calculations.) 6. Refer to the data in Requirement (5) above. a. If the new plant is built, how many skateboards will have to be sold next year to earn the same net operating income, $120,000, as last year? (Do not round intermediate calculations.) b-1. Assume that the now plant is constructed and that next year the company manufactures and selis the same number of skateboards as sold in the most recent year. Prepare a contribution format income statement. (Do not round intermediate calculations.) b-2. Compute the degree of operating leverage. (Do not round intermediate calculations.)
