Voltar Company manufactures and sells a specialized cordless telephone for high electromagnetic radiation environments. The company's contribution format income statement for the most recent year is given below: Voltar Company manufactures and sells a specialized cordless telephone for high electromagnetic radiation environments. The company's contribution format income statement for the most recent year is given below: 7. Lewis Inc. has a margin of safety of $90,000. If Lewis's sales drop by $70,000 will Lewis still have a positive net income. Use an example to explain your answer and include the definition of what margin of safety is? (2pts) Total Per Unit Percent of Sales Sales (20,000 units) $1,200,000 $60 100% Variable expenses 900,000 45 ? % Contribution margin 300,000 $ 15 ? % Fixed expenses 240,000 Net operating income $ 60,000 Management is anxious to increase the company's profit and has asked for an analysis of a number of items. Using the data above answer questions 1-6. Total Per Unit Percent of Sales Sales (20,000 units) $1,200,000 $60 100% Variable expenses 900,000 45 ? % Contribution margin 300,000 $ 15 ? % Fixed expenses 240,000 Net operating income $ 60,000 Management is anxious to increase the company's profit and has asked for an analysis of a number of items. Use the data above to answer question 6 below. Required: Questions 1-5 are 2 points each 1. Compute the company's CM ratio and variable expense ratio. 2. Compute the company's break-even point in both unit sales and dollar sales. Use the equation method. 3. Assume that sales increase by $400,000 next year. If cost behavior patterns remain unchanged, by how much will the company's net operating income increase? 6. In an effort to increase sales and profits, management is considering the use of a higher-quality speaker. The higher-quality speaker would increase variable costs by $3 per unit, but management could eliminate one quality inspector who is paid a salary of $30,000 per year. The sales manager estimates that the higher-quality speaker would increase annual sales by at least 20%. (6 pts) a. Assuming that changes are made as described above, prepare a projected contribution format income statement for next year. Show data on a total, per unit, and percentage basis. b. Compute the company's new break-even point in both unit sales and dollar sales. Use the formula method. c. Would you recommend that the changes be made? 8. Hartford Shoe Inc. is a single product firm. The company predicts that a price increase will not cause unit sales to decrease. Based upon this assumption What would happen to the breakeven point and the contribution margin ratio? Explain your answer by creating a contribution margin income statement ( 2 pts) 4. Assume that next year management wants the company to earn a profit of at least $90,000. How many units will have to be sold to earn this target profit? 5. Compute the company's margin of safety in both dollar and percentage form
