Western Manufacturing Ltd. (WML) has been quite successful in the past producing only one product - model ABC. WML is contemplating several business opportunities that may increase profits. Current financial results are shown below. Sales (25,000 units) $1,000,000 Variable expenses Contribution margin Fixed expenses Operating income - before tax 650,000 350,000 200,000 $150,000 Required a) What is WML's Margin of Safety as a percentage? b) What is WML's Degree of Operating Leverage? c) WML's corporate tax rate is 35%. How many units would WML need to sell to generate an after-tax profit of $208,000? d) WML is considering the use of a more expensive raw material in the manufacture of their product. This new material would increase variable expenses by $5.00 per unit but the company could increase the product's selling price by $7.00 per unit. However, some customers will not be pleased with the price increase (even though the product quality will improve) so the company is estimating a sales decrease in units of 10% if the price is increased. In addition, WML feels that fixed costs will increase by 10% since the more expensive raw material is harder to work with and maintenance costs will increase. a) Ignoring income tax, would you recommend WML use the more expensive raw material in the manufacture of their product? Show all calculations. b) What qualitative factors should be considered before making this decision? e) This scenario is independent of item 4). WML is considering the manufacture of an additional product - model XYZ. WML's sales department estimates that unit sales of XYZ will be 20% of total unit sales. However, WML expects that sales of the ABC model will drop to 22,000 units with the addition of the new model. The sales department expects a per unit selling price of $65.00 for model XYZ and the production department is estimating per unit variable costs of $45.00 for model XYZ. Also, the production department requires an increase in fixed manufacturing costs of $50,000 for additional tooling if the new model is added. i) Ignoring income tax, should WML add the new product? Show all calculations. ii) How many total units must be sold to break even with the new product? ising the projected sales mix, calculate the number of each product that must be sold at which WML would be indifferent between adding the new product and not adding the new product. iv) What qualitative factors should be considered before making this decision?