Question 4: Cost-volume-profit analysis

The following is Pacific Limited's contribution format income statement for January 2022:

Sales	$1,400,000
Variable expenses	700,000
Contribution margin	700,000
Fixed expenses	400,000
Net operating income	$300,000

The company has no beginning or ending inventories and produced and sold 25,000 units during the month.

(show your calculation):

a. The company's top management team is currently investigating how many units they need to sell to reach the break-even point. Also, they want to know how much revenue they need to generate to reach the break-even point. What do you think?

b. If the company aim to generate a profit of $155,000, how many extra units they need to sell beyond the break-even point?

c. What is the company's margin of safety both in dollar and percentage terms? Explain the margin of safety of the company?

d. Company's Marketing Manager is confident that she can increase sales by 28% next year with some effort. What would be the expected percentage increase in net operating income? Use the degree of operating leverage concept to compute your answer.