BREAK-EVEN UNITS, CONTRIBUTION MARGIN RATIO, MULTIPLE-PRODUCT BREAK EVEN, MARGIN OF SAFETY, DEGREE OF OPERATING LEVERAGE

Rad-Brad, Inc.'s projected operating income (based on sales of 350,000 units) for the coming year is as follows:

Total

Sales                                  $8,400,000

Less: Variable expenses       6,720,000

Contribution margin             $1,680,000

Less: Fixed expenses           1,512,000

Operating income                 $ 168,000

Required:

1. Compute:

a. Variable cost per unit

b. Contribution margin per unit

c. Contribution margin ratio

d. Break-even point in units.

e. Break-even point in sales dollars.

2. How many units must be sold to earn operating income of $300,000?

3. Compute the additional operating income that Rad-Brad's would earn if sales were $50,000 more than expected.

4. For the projected level of sales, compute the margin of safety in units, and then in sales dollars.

5. Compute the degree of operating leverage.

6. Compute the new operating income if sales are 10 percent higher than expected.