Question
Topper Sports, Inc., produces high-quality sports equipment. The companys Racket Division manufactures three tennis racketsthe Standard, the Deluxe, and the Prothat are widely used in
Topper Sports, Inc., produces high-quality sports equipment. The companys Racket Division manufactures three tennis racketsthe Standard, the Deluxe, and the Prothat are widely used in amateur play. Selected information on the rackets is given below: Standard Deluxe Pro Selling price per racket $ 45.00 $ 70.00 $ 100.00 Variable expenses per racket: Production $ 27.00 $ 35.00 $ 36.00 Selling (5% of selling price) $ 2.25 $ 3.50 $ 5.00 All sales are made through the companys own retail outlets. The Racket Division has the following fixed costs: Per Month Fixed production costs $ 140,000 Advertising expense 120,000 Administrative salaries 70,000 Total $ 330,000 Sales, in units, over the past two months have been as follows: Standard Deluxe Pro Total April 2,000 1,000 5,000 8,000 May 8,000 1,000 3,000 12,000 Required: 1-a. Prepare contribution format income statements for April. 1-b. Prepare contribution format income statements for May. 3. Compute the Racket Divisions break-even point in dollar sales for April. 4. Will the break-even point would be higher or lower with Mays sales mix than with Aprils sales mix? 5. Assume that sales of the Standard racket increase by $22,000. What would be the effect on net operating income? What would be the effect if Pro racket sales increased by $22,000? Do not prepare income statements; use the incremental analysis approach in determining your answer.
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