The ABC Company Ltd. manufactures and sells a specialized cordless microphone for large gathering environments. The company's contribution format income statement for the most recent year is given below: Sales 80
variable expenses 60
Contribution margin 20
Assuming the Company's current year sales level is 20,000 units and the annual fixed costs are GH 300,000. The management of the company desires to increase operating profit next year and you have been asked for analysis on a number of items. a) Cost-volume-profit (CVP) graph illustrates important relationships. Describe what these relationships are and illustrate these relationships on a graph showing the three important results of a CVP analysis. b) Prepare a contribution format income statement for the current year including the ABC company's CM ratio and variable expense ratio.
c) Compute the company's break-even point in both unit sales and cedi sales
d) Assume that sales in units increase by 20% next year. If cost behavior patterns remain unchanged, by how much will the company's operating profit change? Use the income statement to compute your answer.
) e) Refer to the original data. Compute the company's margin of safety in both cedi and percentage form and interpret your results.