Answer: See explanation
Explanation:
a. Calculate the number of units that must be sold each month for the firm to break even.
Breakeven units = Fixed cost / Contribution margin per unit
= $47600 / ($32 - $20.80)
= $47600 / $11.20
= 4250 units
b. Calculate the margin of safety and the margin of safety ratio.
Margin of safety = $418000 - ($32 × 4250)
= $418000 - $136000
= $282000
Margin of safety ratio = $282000/$418000 = 0.68
c. Calculate operating income if 7,000 units are sold in a month.
= [($32 - $20.80) × 7000] - $47600
= $78400 - $47600
= $30800
d. Calculate operating income if the selling price is raised to $47 per unit, advertising expenditures are increased by $8,000 per month, and monthly unit sales volume becomes 7,600 units.
Sales = 7600 × $47 = $357200
Less: Variable cost at $20.8 = $158080
Contribution = $199120
Less: Fixed cost = $47600
Less: Advertising expense = $8000
Operating income = $143520
