Question 4) Operating results for Muffin Top Inc. last month were as follows:

Sales (40,000 units sold) $200,000

Variable costs 140,000

Contribution margin 60,000

Fixed costs 50,000

Net income 10,000

Calculate the contribution margin ratio

Calculate the break even point in dollars

Calculate the margin of safety as a percentage

Calculate the degree of operation leverage

Using the degree of operating leverage, if sales were to increase by 25%, what would the new net income be?

The sales manager is convinced that a $1 reduction in selling price will double the number of units sold. Would you recommend the company do as the manager suggests?

The operations manager believes that by automating certain functions, which will increase fixed costs by $15,000, he can reduce variable costs per unit by $.50. Should the company do it?