Reference no: EM133041908

Problem 1 - Woodley Corporation management has budgeted the following amounts for its next fiscal year:

Total fixed expenses $500,000

Sale price per unit $1,000

Variable expenses per unit $600

Required -

1. ?If Woodley Corporation can reduce fixed expenses by $20,000, how will break-even sales in units be affected?

2. ?If Woodley Corporation spends an additional $15,000 on advertising, sales volume should increase by 1,000 units. What effect will this have on operating income?

3. ?If Woodley Corporation can reduce fixed expenses by $50,000, by how much can variable expenses per unit increase and still allow the company to maintain the original break-even sales in units?

4. ?If fixed expenses increase by 20%, to maintain the original break-even sales in units, what would be the sale price per unit have to be?

Problem 2 - Happy Feet hiking socks have variable cost of $6 per pair which are then sold for $10 per pair. Monthly fixed costs are $18,000; current sales are 12,000 pairs per month.

Required -

1. ?Compute the break-even sales in units.

2. ?Compute ABC's margin of safety in units and sales dollars.

3. ?Compute ABC's margin of safety as a percentage.

4. ?Compute ABC's operating leverage factor.

5. ?Compute ABC's % of operating income decline if sales fall by 20%.