QUESTION 1 (30 MARKS)

Valencia Manufacturing Company manufactures and sells musical gadgets. The business earned Operating Income of $220,000 in 2018, when selling price per unit was $200, and the president of Valencia is under pressure to increase operating income in 2019. Data for variable cost per unit and total fixed costs were as follows:

Variable expenses per unit: Direct Material	$40
Direct Labour	$32
Variable Manufacturing Overhead	$18
Fixed expenses: Fixed Manufacturing Overhead	$190,000
Fixed Selling Costs	$115,000
Fixed Administrative Costs	$135,000

Required:

(a)Using the equation method, calculate the number of units sold in 2018. (4 marks)

(b) Given the sales units calculated in Part (a), prepare a contribution margin income statement for the year ended December 31, 2018, detailing the composition of total fixed costs and clearly showing contribution and net income. (3 marks)

(c) Calculate Valencias break-even point in units and in sales dollars. (3 marks)

(d) Calculate the margin of safety in units and in sales dollars. (2 marks)