Thornton Corporation sells hammocks; variable costs are $68 each, and the hammocks are sold for $140 each. Thornton incurs $446,400 of fixed operating expenses annually.

Required

a.Determine the sales volume in units and dollars required to attain a $72,000 profit. Prepare an income statement using the contribution margin format.

b. Thornton is considering implementing a quality improvement program. The program will require a $6 increase in the variable cost per unit. To inform its customers of the quality improvements, the company plans to spend an additional $48,600 for advertising. Assuming that the improvement program will increase sales to a level that is 5,800 units above the amount computed in Requirement a, prepare a budgeted income statement using the contribution margin format.

c. Determine the new break-even point in units and sales dollars as well as the margin of safety percentage, assuming that the quality improvement program is implemented.

A1. Determine the sales volume in units and dollars required to attain a $72,000 profit.

Sales Volume in Units
Sales Volume in dollars

A2. Prepare an Income Statement Using the Contribution Margin Format.

THORTON CORPORATION
INCOME STATEMENT
Sales
Variable Cost
Contribution Margin
Fixed Cost
Net Income

B. Thornton is considering implementing a quality improvement program. The program will require a $6 increase in the variable cost per unit. To inform its customers of the quality improvements, the company plans to spend an additional $48,600 for advertising. Assuming that the improvement program will increase sales to a level that is 5,800 units above the amount computed in Requirement a, prepare a budgeted income statement using the contribution margin format.

THORTON CORPORATION
INCOME STATEMENT
Sales
Variable Cost
Contribution Margin
Fixed Cost
Net Income

C. Determine the new break-even point in units and sales dollars as well as the margin of safety percentage, assuming that the quality improvement program is implemented

Break-even point in units____________

Break-even point in dolalrs____________

Margin of Safety____________________%