Question: Miller Metal Co. makes a single product that sells for $44.5 per unit. Variable costs are $27.4 per unit, and fixed costs total $65,625 per month.
a. Calculate the number of units that must be sold each month for the firm to break-even.
b. Assume current sales are $406,000. Calculate the margin of safety and the margin of safety ratio.
c. Calculate operating income of 6,100 units are sold in a month.
d. Calculate operating income if the selling price is raised to $47.5 per unit, advertising expenditures are increased by $9,000 per month, and monthly unit sales volume becomes 6,800 units.
e. Assume that the firm adds another product to its product line and that the new product sells for $22 per unit, has variable costs of $13 per unit, and causes fixed expenses in total to increase to $87,000 per month. Calculate the firm's operating income if 6,100 units of the original product and 4,900 units of the new product are sold each month. For the original product, use the selling price and variable cost data given in the problem statement.
f. Calculate the firm's operating income if 4,200 units of the original product and 6,800 units of the new product are sold each month.
g. Why operating income is different in parts e and f, even though sales totaled 11,000 units in each case.
- The contribution margin ratio for each product is different.
- The contribution margin ratio for each product is same.