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Darringer Products manufactures recreational equipment. One ofthe company’s products, a skateboard, sells for $32. Theskateboards are manufactured in an antiquated plant that reliesheavily on direct labor workers. Thus, variable costs are high,totaling $22.40 per skateboard of which 70% is direct laborcost.

Over the past year the company sold52,000 skateboards, with the following operating results:

Sales (52,000 skateboards)	$	1,664,000
Variable expenses		1,164,800
Contribution margin		499,200
Fixed expenses		422,400
Net operating income	$	76,800

Management is anxious to maintain and perhaps even improve itspresent level of income from the skateboards.

Required:

1a.	Compute the CM ratio and the break-even point in skateboards.(Round your contribution margin answer to the nearest wholepercent. Round up your break even answer to the nearest wholenumber.)

1b.	Compute the degree of operating leverage at last year's level ofsales. (Round your answer to 2 decimalplaces.)

2.	Due to an increase in labor rates, the company estimates thatvariable costs will increase by $1.60 per skateboard next year. Ifthis change takes place and the selling price per skateboardremains constant at $32.00, what will be the new CM ratio and thenew break-even point in skateboards? (Round yourcontribution margin answer to the nearest whole percent. Round upyour break even answer to the nearest whole number.)

3.	Refer to the data in (2) above. If the expected change invariable costs takes place, how many skateboards will have to besold next year to earn the same net operating income, $76,800, aslast year? (Do not round intermediate calculations. Roundyour answer to the nearest whole number.)

4.	Refer again to the data in (2) above. The president has decidedthat the company may have to raise the selling price of itsskateboards. If Tyrene Products wants to maintain the same CMratio as last year, what selling price per skateboard must itcharge next year to cover the increased labor costs? (Donot round intermediate calculations. Round your answer to 2 decimalplaces. )

5.	Refer to the original data. The company is considering theconstruction of a new, automated plant. The new plant would slashvariable costs by 20%, but it would cause fixed costs to increaseby 70%. If the new plant is built, what would be the company’s newCM ratio and new break-even point in skateboards? (Roundyour contribution margin answer to the nearest whole percent. Roundup your break even answer to the nearest wholenumber.)

6.	Refer to the data in (5) above.

a.	If the new plant is built, how many skateboards will have to besold next year to earn the same net operating income, $76,800, aslast year? (Do not round intermediate calculations. Roundyour answer to the nearest whole number.)

b-1.	Assume that the new plant is constructed and that next year thecompany manufactures and sells 52,000 skateboards (the same numberas sold last year). Prepare a contribution format income statement.(Input all amounts as positive values except losses whichshould be indicated by minus sign. )

b-2.	Compute the degree of operating leverage. (Round youranswer to 2 decimal places.)