Subject: Cost Accounting

NOTE: If you want thumbs up on your answer kindly solve all parts of the question accurately thanks in advance.

Volter Company manufactures and sells a specialized cordless telephone for high electromagnetic radiation environments. The companys contribution format income statement for the most recent year is given below:

	Total (Rs.)	Per unit	Percent of sale
Sale (20000 units)	1,200,000	60	100%
Variable cost	900,000	45	?
Contribution Margin	300,000	15	?
Fixed cost	240,000
Net operating income	60,000

Management is anxious to increase the companys profit and has asked for an analysis of a number of items.

Required:

1. Refer to the original data. Compute the companys margin of safety in both dollar and percentage form.

2. a. Compute the companys degree of operating leverage at the present level of sales.

b. Assume that through a more intense effort by the sales staff, the companys sales increase by 8% next year. By what percentage would you expect net operating income to increase? Use the degree of operating leverage to obtain your answer.

c. Verify your answer to ( b ) by preparing a new contribution format income statement showing an 8% increase in sales.

7. In an effort to increase sales and profits, management is considering the use of a higher-quality speaker. The higher-quality speaker would increase variable costs by Rs. 3 per unit, but management could eliminate one quality inspector who is paid a salary of Rs. 30,000 per year. The sales manager estimates that the higher-quality speaker would increase annual sales by at least 20%.

a. Assuming that changes are made as described above, prepare a projected contribution format income statement for next year. Show data on a total, per unit, and percentage basis.

b. Compute the companys new break-even point in both units and dollars of sales. Use the formula method.

c. Would you recommend that the changes be made?