Waterways Problem 05

The Vice President for Sales and Marketing at Waterways Corporation is planning for production needs to meet sales demand in the coming year. He is also trying to determine how the companys profits might be increased in the coming year. This problem asks you to use cost-volume-profit concepts to help Waterways understand contribution margins of some of its products and decide whether to mass-produce any of them. Waterways markets a simple water control and timer that it mass-produces. Last year, the company sold 720,000 units at an average selling price of $4.70 per unit. The variable costs were $2,030,400, and the fixed costs were $879,840.

1. What is the product's contribution margin ratio?

Contribution margin ratio_____%

2. What is the company's break-even point in the units and in dollars for this product?

Break-even points in units ______ units

Break-even point in dollars $________

3. What is the margin of safety, both in dollars and as a ratio?

Margin of safety in dollars $______

margin of safety ratio _______%

4. If management wanted to increase its income from this product by 10%, how many additional units would have to be sold to reach this income level?

Waterways would have to sell an additional_________ units?