sision Systems manufactures tape decks and currently sells 1 500 units annually to produc- as of sound reproduction systems. Jay Wilson president $ 18,500 units annually to produc- son, president of the company, anticipates a 15% in- se in the cost per unit of direct labor on January 1 of next vear. He expects all other costs od expenses to remain unchanged. Wilson has asked you to assist him in developing the infor- stion he needs to formulate a reasonable product strategy for next year. You are satisfied that volume is the primary factor affecting costs and expenses and have sep- rated the semivariable costs into their fixed and variable seements. Beginning and ending in- ventories remain at a level of 1,000 units. Below are the current-year data assembled for your analysis: PROBLEM 19.9 Analyzing the Effects of Changes Costs LO 4, 5, 6 $100 Sales price per unit .............................................. Variable costs per unit: Direct materials... Direct labor Manufacturing overhead and selling and administrative expenses Contribution margin per unit (40%). Fixed costs ............ $390,000 Instructions a. What increase in the selling price is necessary to cover the 15% increase in direct labor cost and still maintain the current contribution margin ratio of 40%? How many tape decks must be sold to maintain the current operating income of $350,000 if me sales price remains at $100 and the 15% wage increase goes into effect? (Hint: First com- pute the unit contribution margin.) C Wilson believes that an additional $700.000 of machinery (to be depreciated at 20% annually) Will increase present capacity (20,000 units) by 25%. If all tape decks produced can be sold the present price of $100 per unit and the wage increase goes into effect, how would the es. ated operating income before capacity is increased compare with the estimated operating come after capacity is increased? Prepare schedules of estimated operating income at full capacity before and after the expansion