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 682,000 units at an average selling price of $3.40 per unit. The variable costs were $1,391,280, and the fixed costs were $649,264.

1)What is the products contribution margin ratio?

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

3)What is the margin of safety, both in dollars and as a ratio?

4)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?

5)If sales increase by 50,000 units and the cost behaviors do not change, how much will income increase on this product?

6)

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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 489,000 sprinkler units at an average selling price of $25.80. The manufacturing costs are $6,825,310 variable and $1,693,803 fixed. Selling and administrative costs are $2,636,840 variable and $793,560 fixed. If Waterways begins mass-producing its special-order sprinklers, how would this affect the company?

	current	new	effect
Contribution margin ratio
Net income

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 489,000 sprinkler units at an average selling price of $25.80. The manufacturing costs are $6,825,310 variable and $1,693,803 fixed. Selling and administrative costs are $2,636,840 variable and $793,560 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?

Contribution margin ratio		select between increase and decrease IncreaseDecrease		by		enter the net change in contribution margin ratio in percentages	%
Profit		select between increase and decrease IncreaseDecrease		by		$enter the change in profit amount in dollars