Sales Less: VC CM Less: FC Break-even Analysis (assuming 5,000 Units) Total Per Unit Percentage $ 100,000 $ 20 100% 60,000 12 60% 40,000 8 40% 10,000 $ 30,000 NI Break-even: NI = $0 CM = FC BE in UNITS = FC unit CM BE in Sales Dollars = FC CM% Target Profit: In Units = Target Profit + FC Unit CM In Sales Dollars = Target Profit + FC CM% Margin of Safety: In Dollars = Total Budget (or Actual) Sales - BE Sales Margin of Safety Percentage= Margin of Safety in Dollars Total Budget (or Actual) Sales Degree of Operating Leverage=Contribution Margin Net Operating Income I Review Problem: CVP Relationships Voltai Company manufactures and sells a specialized cordless telephone for high electromagnetic radiation environments. The company's contribution format income statement for the most recent year is given below: Total Per Unit Sales (20,000 units). Variable expenses Contribution margin Fixed expenses... Net operating income $1,200,000 900.000 300,000 240.000 $ 60.000 $60 45 $15 Percent of Sales 100% 7% 294 Management is anxious to increase the company's profit and has asked for an analysis of a number of items. Required: 1. Compute the company's CM ratio and variable expense ratio, 2. Compute the company's break-even point in both units and sales dollars. 3. Assume that sales increase by $400,000 next year. If cost behavior patterns remain unchanged, by how much will the company's net operating income increase? Use the CM ratio to compute your answer. 4. Refer to the origin al data. Assume that next year management wants the company to coma profit of at least 890,000. How many units will have to be sold to meet this target profit? 5. Refer to the Oligin al data. Compute the company's margin of safety in both dollar and percent- age form