Volvo 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:

Total (Tk.)

Per Unit

Percent of Sales

Sales (2,000 units)

1,00,000

50

100%

Variable Expense

60,000

30

?%

Contribution Margin

40,000

20

?%

Fixed Expenses

20,000

Net Operation Income

20,000

Management is anxious to increase the company's profit and has asked for an analysis of a number of items.

Required:

1. Compute the company's CM ratio and variable expense ratio.
2. Compute the company's break-even point in both units and sales dollars.
3. Assume that sales increase by Tk.100,000 next year. If cost behavior patterns remain unchanged, by how much will the company's net operating income increase? Use the CM ratio to compute your answer.
4. Refer to the original data. Assume that next year management wants the company to earn a profit of at least Tk.50,000. How many units will have to be sold to meet this target profit?
5. Refer to the original data. Compute the company's margin of safety in both dollar and percentage form.
6. a. Compute the company's degree of operating leverage at the present level of sales.

b. Assume that through a more intense effort by the sales staff, the company's sales increase by 5% next year. By what percentage would you expect net operating income to increase? Use the degree of operating leverage to obtain your answer.

c. Verify your answer to (b) by preparing a new contribution format income statement showing a 5% increase in sales.