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 companys 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 741,000 units at an average selling price of $4.90 per unit. The variable costs were $2,541,630, and the fixed costs were $762,489.

(a1)

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

Contribution margin ratio

enter the contribution margin ratio in percentages

%

(a2)

What is the companys break-even point in units and in dollars for this product?

Break-even point in units		enter the break-even point in units	units
Break-even point in dollars		$enter the break-even point in dollars

(a3)

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		$enter the margin of safety in dollars
Margin of safety ratio		enter the margin of safety ratio in percentages	%

(a4)

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

enter the additional selling units

units

(a5)

If sales increase by 57,000 units and the cost behaviors do not change, how much will income increase on this product?

Income will increase by

$enter the increase in income amount in dollars

(b1)

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 481,000 sprinkler units at an average selling price of $25.20. The manufacturing costs are $5,811,160 variable and $2,155,660 fixed. Selling and administrative costs are $2,673,680 variable and $798,370 fixed. If Waterways begins mass-producing its special-order sprinklers, how would this affect the company? (Round ratio to 2 decimal places, e.g. 5.25% and Net income to 0 decimal places, e.g. 2,520.)

		Current			New			Effect
Contribution margin ratio		enter the contribution margin ratio in percentages	%		enter the new contribution margin ratio in percentages	%		select between increase and decrease IncreaseDecrease		by		enter the net change in contribution margin ratio in percentages	%
Net income		$enter the net income amount in dollars			$enter the new net income in dollars			select between increase and decrease DecreaseIncrease		by		$enter the change in net income in dollars