The income statement for Martin Corp. presented below shows the operating results for the fiscal year just ended. Martin produced and sold 8,000 tons of product during that year. The manufacturing capacity of Martins facilities is 40,000 tons of product.

Revenues $3,200,000

Variable costs:

Manufacturing $1,600,000

Nonmanufacturing 800,000 2,400,000

Contribution margin 800,000

Fixed costs:

Manufacturing 400,000

Nonmanufacturing 200,000 600,000

Operating income 200,000

Income taxes (25%) 50,000

Net income $150,000

Required:

1. If the sales volume is estimated to be 10,000 tons for next year, and if the selling price and cost-behavior patterns remain the same the next year, how much net income does Martin expect to earn next year?
2. Assume Martin estimates the selling price per ton will decline 8% next year, variable cost will increase by $40 per ton, and total fixed costs will increase by $75,000. Compute how many tons must be sold next year to earn a net income of $250,000. Comment on your answer.