Riley Company manufactures and sells automated door locks for upscale apartments in the city. The following information is given.

Sales(40,000 units)$2,400,000

Variable expenses$1,800,000

Fixed expenses$480,000

In an effort to increase the company's profits the management as ask for an analysis of the items below.

Questions

a)Construct the company's contribution margin(CM) income statementand compute the CM ratio and variable expense ratio.

b)Compute the company's break-even point in both units and sales dollars. Use the equation method.

c)Assume sales increase by 5,000 units next year and cost patterns remained unchanged, how much will be the company's new net operating income.

d)Based on the data given if management wants to earn a profit of $150,000, how many units must be sold to achieve this target.

e)In an effort to increase sales and profit management has decided to use higher quality inputs. These inputs will increase variable costs by $3 per unit and, at the same timereduce labour by $30,000 per year. Consequently sales is estimated to increase by 20% annualy.

i)complete a projected contribution format income statement for next year given the changes.

ii)Compute the company' new breakeven point in both dollars and sales.

iii)would you recommend that the changes be made?