The following is Arkadia Corporation's current contribution format income statement for the month:

Sales	$1,200,000
Less: variable costs	840,000
Contribution margin	360,000
Less: fixed costs	280,000
Operating income	$ 80,000

The company has no beginning or ending inventories and produced and sold 20,000 units during the month. Required:

1. What is the company's contribution margin ratio? If sales increase by 100 units, by how much should operating income increase (use the contribution margin ratio to answer this question)? (2.5 marks)

2. What is the company's break-even in units? (1.5 marks)

3. How many units would the company have to sell to attain a target operating income of $125,000? (1.5 marks)

4. What is the company's margin of safety in dollars? ( 2 marks)

5. What is the company's degree of operating leverage? Use this result to predict what the new operating income would be after a 20% increase in sales. (2.5 marks)

6. The company is considering a major change in cost structure, such that the variable costs per unit will decrease by 50%, and the total fixed costs will double, compared to current levels. At what level of sales in units would the company be indifferent between the current and proposed cost structure? Show your calculations. Which cost structure would be preferred at the current level of sales? Briefly justify your answer. ( 5 marks)