Question 4: Ch. 5 Isaac Corporation has collected the following information after its rst year of sales. Sales were $1,800,000 on 100,000 units; selling expenses $400,000 (3 0% variable and 70% xed); direct materials $456,000; direct labor $250,000; administrative expenses $484,000 (50% variable and 50% fixed); manufacturing overhead $480,000 (40% variable and 60% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 20% next year. Instructions (a) Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that xed costs will remain the same in the projected year.) 5.75 points (b) Compute the break-even point in units and sales dollars. 1 w (c) The company has a target net income of $213,000. What i=5 the required sales in dollars for the company to meet its target? 0.5 points (d) The company is considering a purchase of equipment that would reduce its direct labor costs by $100,000 and would change its manufacturing overhead costs to 10% variable and 90% xed (assume total manufacturing overhead cost is $480,000, as above). It is also considering switching to a pure commission basis for its sales staff. This would change selling expenses to 80% variable and 20% xed (assume total selling expense is $400,000, as above). For this year compute (1) The contribution margin 1.5 points (2) The contribution margin ratio, 0.5 points (3) Recompute the break-even point in units and sales dollars. 1 w (4) Should the management's go ahead with the proposed changes? 0.25 points