1. DragNet Manufacturing sold 72,000 units of its product for $95 per unit in 2014. Variable cost per unit is $51.30 and total fixed costs are $5,350,000.
Required:
a. Compute the company's CM ratio and its break-even point in both units and dollars.
b. Assume that the company increased its monthly advertising budget by $66,000, which would result in a $5,500,000 increase in monthly sales. What would be the effect on the company's monthly net operating income or loss? (Use the incremental approach in preparing your answer.)
c. Refer to the original data. The CEO proposes a reduction in the selling price to $75, which would increase the monthly advertising budget by $102,200, and double unit sales. Prepare the new contribution format income statement.