Reference no: EM133115731

Question 1 - Q Company makes radios that sell for $40 each. For the coming year, management expects fixed costs to total $121,120 and variable costs to be $32.00 per unit.

Calculate the break-even point in dollars using the contribution margin ratio.

Calculate the margin of safety ratio assuming actual sales are $757,000.

Calculate the sales dollars required to earn operating income of $140,000.

Question 2 - Embleton Company estimates that variable costs will be 80% of sales, and fixed costs will total $368,800. The selling price of the product is $4.

Calculate the break-even point in units and dollars.

Assuming actual sales are $2,305,000, calculate the margin of safety in dollars and as a ratio.

Question 3 - Alice Oritz is the advertising manager for Value Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $12,600 in fixed costs to the $198,450 currently spent. In addition, Alice is proposing that a 10% price decrease ($25 to $22.50) will produce a 20% increase in sales volume (21,000 to 25,200). Variable costs will remain at $10 per pair of shoes. Management are impressed with Alice's ideas but are concerned about the effects that these changes will have on the break-even point and the margin of safety.

Calculate the current break-even point in units, and compare it with the break-even point in units if Alice's ideas are used.

Prepare CVP income statements for current operations and after Alice's changes are introduced.