Vice President for Sales and Marketing Sam Totter is trying to plan for the coming year in terms of production needs to meet the sales demand. He is also trying to determine ways in which the companys profits might be increased in the coming year. Instructions (Do all parts):

Northern Illinois Manufacturing markets a simple water control and timer that it mass- produces. During last year, the company sold 701,000 units at an average selling price of 4.20 per unit. The variable expenses were $1,857,650 and the fixed expenses were $646,450.

1. What is the products contribution margin ratio? (Round to nearest whole percentage.)

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? What is the companys degree of operating leverage? (Round to nearest whole percentage.)

4. If management wanted to increase its net operating 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 51,000 units and the cost behaviors do not change, how much will net operating income increase on this product?

6. Northern Illinois management believes that increased advertising would increase unit sales by 10%. If management wants to increase its operating income by $50,000, how much could the company spend on additional advertising to reach its goal?

7. Using last years data as the starting point, assume the company can increase sales by 5% by just continuing its current marketing program. What would the companys net operating income by next year using the DOL?