Reference no: EM132556881

Voltar Company manufactures and sells a specialized cordless telephone for high electromagnetic radiation environments. The company's contribution format income statement for the most recent year is given below.

                                                          Total                              Per Unit

Sales (20,000 Units)                    1,200,000                    $60

Less variable expenses                    900,000                     45

Contribution Margin                         300,000                   $15

Less fixed expenses             240,000

Net operating income           $60,000

Management is anxious to improve the company's profit performance and has asked for an analysis of a number of items.

Required:

Question a) Compute the company's CM ratio and variable expense/selling price ratio.

Question b) Compute the company's break-even point in both units and sales dollars

Question c) Assume that sales increased by $ 400,000 next year. If cost behavior pattern remains unchanged, by how much will the company's net operating income increase?

Question d) Refer to the original data. Assume that next year management wants the company to earn a minimum profit of $ 90,000. How many units will have to be sold to meet this target profit?

Question e) Refer to the original data. Compute the company's margin of safety in both dollar and percentage form.

Question f) (i) Assume that through a more intense effort by the sales staff, the company's sales increase by 8% next year. By what percentage would you expect net operating income to increase?

(ii) Verify your answer to (i) by preparing a new contribution format income statement showing an 8% increase in sales.

Question g) In an effort to increase sales and profit, management is considering the use of a higher quality speaker. The higher - quality speaker would increase variable costs by $3 per unit, but management could eliminate one quality inspector who is paid a salary of $30,000 per year. The sales manager estimates that the higher-quality speaker would increase annual sales by at least 20%.

1) Assuming that changes are made as described above, prepare a projected contribution format income statement for next year.

2) Compute the company's new break-even-point in both units and dollars of sales.

3) Would you recommend that the changes be made?