Vice President for Sales and Marketing Sam Totter is trying to plan for the coming year in terms of production needs to meet the sales demand. He is also trying to determine ways in which the company’s profits might be increased in the coming year. Instructions (Do all parts):
Northern Illinois Manufacturing markets a simple water control and timer that it mass-produces. During last year, the company sold 701,000 units at an average selling price of 4.20 per unit. The variable expenses were $1,857,650 and the fixed expenses were $646,450.
1. What is the product’s contribution margin ratio? (Round to nearest whole percentage.)
2. What is the company’s break-even point in units and in dollars for this product?
3. What is the margin of safety, both in dollars and as a ratio? What is the company’s degree of operating leverage? (Round to nearest whole percentage.)
4. If management wanted to increase its net operating income from this product by 10%, how many additional units would have to be sold to reach this income level?