The following cost information is available for a single product manufactured and sold by Fantasy Corp.: Variable costs: Direct materials $ 10 Fixed costs (in total): (Per unit) Direct labor 12 Fixed overhead $ 540,000 Variable overhead 3 Fixed selling 360,000 Variable selling 2 Units sell for $36 each, and the firm is currently manufacturing and selling 120,000 units.

1. Determine the contribution margin per unit and the contribution margin ratio (percentage). Unit sales $36 variable costs $27 = $9 contribution margin per unit Contribution margin per unit $9 / unit sales $36 = 25% contribution margin ratio

2. Calculate the firms breakeven point in units. Fixed costs ($540000 + $360000) / contribution margin per unit $9 = 100,000 breakeven point in units

3. Calculate the firms breakeven point in sales dollars (revenues). Breakeven point in units $100000 x sales per unit $36 = $3,600,000 breakeven point in sales dollars

4. Calculate income at their current operating level of 120,000 units. Contribution margin per unit $9 x sales volume $120000 = $1,080,000 contribution margin $1,080,000 - $900000 fixed costs = $180,000

5. Suppose a change in manufacturing technology would allow the firm to reduce direct labor costs to $6 per unit, but would increase fixed overhead costs by $150,000. Compute the breakeven point (in units) considering these changes to the cost structure. Fixed costs $900000 + increase of $150000 = $1,050,000 $1,050,000 / variable costs ($27 - $6 direct labor reduction) = $50,000 breakeven point in units

6. Return to the original information (ignore changes in part 5). Suppose the firm can add a second product that would sell for $20 per unit, have unit variable costs of $13, and would increase total fixed costs by $320,000. Determine the firms total income if they continue making and selling 120,000 units of the original product and make and sell 80,000 units of the second product.

7. Continuing with the 2 products, suppose the sales mix changes so they make and sell 100,000 units of each product (making the same total of 200,000 units). Determine the firms total income with this mix of the two products.