The Vice President for Sales and Marketing at Waterways Corporation is planning for production needs to meet sales demand in the coming year. He is also trying to determine how the company's profits might be increased in the coming year. This problem asks you to use cost-volume-profit concepts to help Waterways understand contribution margins of some of its products and decide whether to mass-produce any of them.

Waterways markets a simple water control and timer that it mass-produces. Last year, the company sold 659,000 units at an average selling price of $3.60 per unit. The variable costs were $1,423,440, and the fixed costs were $616,824.

What is the product's contribution margin ratio? (Round ratio to 0 decimal places, e.g. 25%.)

Contribution margin ratio

_________%

What is the company's break-even point in units and in dollars for this product?

Break-even point in units

_____units

Break-even point in dollars

$_____

What is the margin of safety, both in dollars and as a ratio? (Round ratio to 0 decimal places, e.g. 25%.)

Margin of safety in dollars

$_____

Margin of safety ratio

_____%

If management wanted to increase its income from this product by 10%, how many additional units would have to be sold to reach this income level?

Waterways would have to sell an additional

_____ units

If sales increase by 52,000 units and the cost behaviors do not change, how much will income increase on this product?

Income will increase by

$_____

Waterways is thinking of mass-producing one of its special-order sprinklers. To do so would increase variable costs for all sprinklers by an average of $0.70 per unit. The company also estimates that this change could increase the overall number of sprinklers sold by 10%, and the average sales price would increase $0.20 per unit. Waterways currently sells 495,000 sprinkler units at an average selling price of $25.80. The manufacturing costs are $6,954,830 variable and $1,723,025 fixed. Selling and administrative costs are $2,623,420 variable and $807,800 fixed.

If Waterways begins mass-producing its special-order sprinklers, how would this affect the company? (Round ratio to 0 decimal places, e.g. 5% and Net income to 0 decimal places, e.g. 2,520.)

CurrentNewEffect

Contribution margin ratio%____%____Increase or Decrease by ____%

Net income$____$____ Decrease or Increaseby $____

Waterways is thinking of mass-producing one of its special-order sprinklers. To do so would increase variable costs for all sprinklers by an average of $0.70 per unit. The company also estimates that this change could increase the overall number of sprinklers sold by 10%, and the average sales price would increase $0.20 per unit. Waterways currently sells 495,000 sprinkler units at an average selling price of $25.80. The manufacturing costs are $6,954,830 variable and $1,723,025 fixed. Selling and administrative costs are $2,623,420 variable and $807,800 fixed.

If the average sales price per sprinkler unit did not increase when the company began mass-producing the special-order sprinkler, what would be the effect on the company? (Round answers to 0 decimal places, e.g. 5% or 2,520.)

Contribution margin ratioIncrease or Decrease by ____%

ProfitDecrease or Increase by $____