Vernon Corporation sells hammocks; variable costs are $64 each, and the hammocks are sold for $143 each. Vernon incurs $550,200 of fixed operating expenses annually.

Required

a1. Determine the sales volume in units and dollars required to attain a $66,000 profit.

a2. Prepare an income statement using the contribution margin format.

b. Vernon is considering implementing a quality improvement program. The program will require a $5 increase in the variable cost per unit. To inform its customers of the quality improvements, the company plans to spend an additional $56,600 for advertising. Assuming that the improvement program will increase sales to a level that is 5,600 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.

Vernon is considering implementing a quality improvement program. The program will require a $5 increase in the variable cost per unit. To inform its customers of the quality improvements, the company plans to spend an additional $56,600 for advertising. Assuming that the improvement program will increase sales to a level that is 5,600 units above the amount computed in Requirement a, prepare a budgeted income statement using the contribution margin format.