Question 11 (20 points)

Cost volume profit analysis Honey Bear produces a single product. The projected income statement for the coming year is as follows:

Sales (40,000 units @ $15)	$ 600,000
Total variable cost	$(400,000)
Contribution margin	$200,000
Total fixed cost	$(150,000)
Operating income	$50,000

Required:

1. Compute the break-even point in units and sales dollars (Note: round to the nearest unit and dollar).

2. Compute the new operating income if sales are 20 per cent higher than expected. (Note: round to the nearest dollar).

3. If the variable cost became $5 per unit, what would the new break-even amount be in units?

4. Explain what is meant by a margin of safety and what would this margin be if Honey Bear sold 35,000 units per year? (Note: use your answer from Part c.) Type each answer below with its corresponding letter (a-d).