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Problem I Stella Products manufactures recreational equipment. One of the companys products, a skateboard, is manufactured in an antiquated plant that relies heavily on direct labor workers. Thus, variable costs are high per skateboard, of which 60% is direct labor cost. Over the past year the company sold 40,000 skateboards, with the following operating results: Sales Revenue $1,500,000 Variable expenses 900,000 Contribution margin 600,000 Fixed expenses 480,000 Net operating income $120,000 Management is anxious to maintain and perhaps even improve its present level of income from the skateboards. Required: 1. Compute break-even in terms of number of skateboards. 2. If sales were to increase by 15%, what would be the new net operating income? Part II Zoran Corporation manufactures and sells a single product; cell phones. Zoran is considering upgrading its current manufacturing facilities with more modern equipment. Relevant cost data under the current facility and the upgraded facility is provided below. Current Upgraded Manufacturing costs: Current. upgrade Direct materials cost per unit $20.00 $20.00 Direct labor cost per unit 18.00 10.00 Variable overhead cost per unit 34.00. 24.00 Fixed overhead cost in total 43,000.00 $160,000.00 Under either system, Zoran will sell the cell phones for $125 per phone. Required: 1. What is the break-even point (in number of phones) of each option?

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