Q2. Voltar Company manufactures and sells a wireless router signal booster. The company's contribution margin income statement for the most recent year is given below: Total Per Unit Percentage of Sales Sales (20,000 units) $1,200,000 $60 100 Less: Variable expenses 900,000 45 Contribution margin 300,000 $15 811 Less: Fixed expenses Net operating income 240,000 $ 60,000 Management is anxious to improve the company's profit performance and has asked for an analysis of a number of items. Required: 1. Compute the company's CM ratio and variable expense ratio. 2. Compute the company's break-even point in both units and sales dollars. Use the equation method. 3. Assume that sales increase by $400,000 next year. If cost behaviour patterns remain unchanged, by how much will the company's net operating income increase? Use the CM ratio to determine your answer. 4. Refer to the original data. Assume that next year management wants the company to earn a minimum profit of $90,000. How many units will have to be sold to meet this target profit figure? 5. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. 6. a. Compute the company's degree of operating leverage at the present level of sales. Page 372 b. Assume that, through a more intense effort by the sales staff, the company's sales increase by 8% next year. By what percentage would you expect net income to increase? Use the operating leverage concept to obtain your answer. c. Verify your answer to part (b) by preparing a new income statement showing an 8% increase in sales. 7. In an effort to increase sales and profits, management is considering the use of a higher-quality antenna. The higher-quality antenna would increase variable costs by $3 per unit, but management could eliminate one quality inspector, who is paid a salary of $30,000 per year. The sales manager estimates that the higher-quality antenna would increase annual sales by at least 20%. a. Assuming that changes are made as described above, prepare a projected income statement for next year. Show data on total, per- unit, and percentage bases. b. Compute the company's new break-even point in both units and dollars of sales. Use the contribution margin method. c. Would you recommend that the changes be made? ||