Question

Babcock, Inc. generated the following information for its product:                                &

Babcock, Inc. generated the following information for its product:

                                                                                      Per Unit

                  Sales price                                                      $90

                  Variable cost                                                   54

                  Contribution margin                                        $36

                  Total fixed costs                                  $1,080,000

Answer the following independent questions and show computations to support your answers.

1.   How many units must be sold to break even?

2.   What is the total sales that must be generated for the company to earn a profit of $60,000?

3.   If the company is selling 45,000 units in the current year, but it plans to spend an additional $108,000 on an advertising program in the next year, how many additional units must the company sell to earn the same net income it is now making?

4.   Using the original data in the problem, compute a new break-even point in units if the unit sales price is increased 20%, unit variable cost is increased by 10%, and total fixed costs are increased by $135,000.

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