Pronghorn produces one single product, a small reading tablet,and sells it at $100 per unit. Its current annual sales are$200,000. Its annual fixed costs include factory rent, $38,000;depreciation expense; equipment, $10,000; utilities, $18,000;insurance, $8,000. Its variable costs include materials, $30 perunit, and direct labour, $40 per unit. Pronghorn’s income tax rateis 20%.
1.What is the contribution margin per unit?
2.What is the contribution margin ratio?
3.How many units must Pronghorn sell to break even?
4.If Pronghorn would like to earn a profit after tax of $11,000,what should the sales be? At this sales level, what is the degreeof operating leverage? What is the margin of safety in unit?
5.If Pronghorn would like to earn a profit after tax that is 8%of sales, what should the sales be? How many units does Pronghornneed to increase from the current sales level?
