Reference no: EM132618910

Fast Company offers two products. At present, the following represents the usual results of a month's operations:

                                                    Product K                          Product L

                                     Amount per unit                Amount per unit            Combined Amount

Sales revenue:           $120000   $1.20                     $80000   $0.80                      $200000

Variable expenses:      60000     0.60                       60000     0.60                        120000

Contribution margin:   $60000    $0.60                      $20000     0.20                       80000

Fixed expenses:        50000

Net operating income:   $30000

Required:

Problem a. Find the break-even point in terms of dollars.

Problem b. Find the margin of safety in terms of dollars.

Problem c. The company is considering decreasing product K's unit sales to 80,000 and increasing product L's unit sales to 180,000, leaving unchanged the selling price per unit, variable expense per unit, and total fixed expenses. Would you advise adopting this plan?

Problem d. Refer to (c) above. Under the new plan, find the break-even point in terms of dollars.

Problem e. Under the new plan in (c) above, find the margin of safety in terms of dollars.