Whittier Company sells mulching mowers at $$400$ each. Variable cost per unit is $$325,$ and total

fixed costs are $$45,000.$ Whittier Company plans to sell $1,000$ mowers next year. Break$-$even units were

previously calculated as $600$ units.

Requirements:

$1.$ Calculate the number of units that Whittier Company must sell to earn operating income of

$$37,500$ before income taxes $($ignore income taxes$).$

Check your answer by preparing a contribution margin income statement based on the number of

units calculated.

$2.($a$)$ Calculate the margin of safety for Whittier Company in terms of the number of units.

$($b$)$ Calculate the margin of safety for Whittier Company in terms of sales revenue.

$3.$ Calculate the degree of operating leverage $($DOL$)$ for Whittier Company at the level of $1,000$

mowers expected to be sold next year.

$4.$ Using the DOL information from Requirement #$3$ above, assume that Whittier Company plans to

increase sales by $20\%$ next year.

$($a$)$ Calculate the percent change in operating income expected by Whittier Company for next year

using the degree of operating leverage.

$($b$)$ Calculate the operating income expected by Whittier Company next year using the percent

change in operating income calculated in Requirement $4($a$).$

$5.$ For this requirement, ignore the above facts and assume instead that Whittier Company sells two

products: mulching mowers priced at $$400$ and riding mowers priced at $$800.$ The variable costs

per unit are $$325$ per mulching mower and $$600$ per riding mower. Total fixed expense is $$96,250$

$($direct fixed expense of $$30,000$ and $$40,000,$ respectively, and common fixed expense of

$$26,250).$ Whittier$$s expected sales mix is three mulching mowers to two riding mowers.

$($a$)$ Create a package $($or bundled product$)$ of mulching and riding mowers based on the desired

sales mix, and calculate the package contribution margin. Calculate the break$-$even point in units

for mulching mowers and units for riding mowers.

$($b$)$ Check your answer by preparing a contribution margin income statement.