Dramatic Decor Co. manufactures decorative iron ornaments. In preparing for next year’s operations, management has developed the following estimates:
Total Per Unit
Sales (20,000 units) $1,000,000 $50.00
Direct materials 200,000 10.00
Direct labor 50,000 2.50
Factory overhead:
Variable 70,000 3.50
Fixed ‘ 80,000
Selling and administrative:
Variable 100,000 5.00
Fixed 30,000
Required:
a. Compute the contribution margin.
b. Compute the contribution margin ratio.
c. Compute the break-even point in sales dollars.
d. Compute the margin of safety.
e. If the sales volume increases by 20% with no change in total fixed expenses, what will be the change in the net operating income?
f. If variable production costs increase by 15%, and fixed selling and administrative expenses increase by 12%, what will be the new break-even point in units?
