The Vice President for Sales and Marketing at WaterwaysCorporation is planning for production needs to meet sales demandin the coming year. He is also trying to determine how thecompany’s profits might be increased in the coming year. Thisproblem asks you to use cost-volume-profit concepts to helpWaterways understand contribution margins of some of its productsand decide whether to mass-produce any of them.
Waterways markets a simple water control and timer that itmass-produces. Last year, the company sold 721,000 units at anaverage selling price of $3.50 per unit. The variable costs were$1,766,450, and the fixed costs were $529,935.
-Contribution of margin Ratio= 30%
-Break Even point in Units=504,700
-Break Even Point in dollars=1,766,450
(A)What is the margin of safety, both in dollars and as a ratio?(Round ratio to 0 decimal places, e.g.25%.)
(B)If management wanted to increase its income from this productby 10%, how many additional units would have to be sold to reachthis income level?
(C)If sales increase by 51,000 units and the cost behaviors donot change, how much will income increase on this product?
