Problem: Baker Company has a product that sells for $20 per unit. The variable expenses are $12 per unit, and fixed expenses total $30,000 per year.
Required to do:
Q1. What is the total contribution margin at the break-even point?
Q2. What is the contribution margin ratio for the product?
Q3. If total sales increase by $20,000 and fixed expenses remain unchanged, by how much would net operating income be expected to increase?
Q4. The marketing manager wants to increase advertising by $6,000 per year. How many additional units would have to be sold to increase overall net operating income by $2,000?