Topper Sports, Inc., produces high-quality sports equipment. The company€™s Racket Division manufactures three tennis rackets€”the Standard, the Deluxe, and the Pro€”that are widely used in amateur play. Selected information on the rackets is given below:

AAll sales are made through the company€™s own retail outlets. The Racket Division has the following fixed costs:
Per Month
Fixed production costs . . . . . . . . . . . $120,000
Advertising expense . . . . . . . . . . . . 100,000
Administrative salaries . . . . . . . . . . . 50,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . $270,000
Sales, in units, over the past two months have been as follows:

Required:
1. Using the contribution approach, prepare an income statement for April and an income statement for May, with the following headings:

Place the fixed expenses only in the Total column. Do not show percentages for the fixed expenses.
2. Upon seeing the income statements in (1) above, the president stated, €œI can€™t believe this! We sold 50% more rackets in May than in April, yet profits went down. It€™s obvious that costs are out of control in that division.€ What other explanation can you give for the drop in net operating income?
3. Compute the Racket Division€™s break-even point in dollar sales for April.
4. Has May€™s break-even point in dollar sales gone up or down from April€™s break-even point? Explain without computing a break-even point for May.
5. Assume that sales of the Standard racket increase by $20,000. What would be the effect on net operating income? What would be the effect if Pro racket sales increased by $20,000? Do not prepare income statements; use the incremental analysis approach in determining youranswer.

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Standard Deluxe $40.00 $60.00 $90.00 $22.00 $27.00 $31.50 Pro Selling price per racket Variable expenses per racket: Production Selling (5% of selling price) $2.00$3.00 $%4.50 Standard Deluxe Pro Total April May 2,000 1.000 5,000 8,000 8,000 1,000 3,000 12,000 Total Deluxe Pro Standard Amount Percent Amount Percent Amount Percent Amount Percent Sales - Etc. ..