Changing Times sells 185,000 bottles of TempeTingler nail polish each year. The product, which is very popular with teens, sells for $13 per bottle, and variable cost per unit is $5.50. Total annual fixed costs are $1,260,000.
Required:
(a) What is the margin of safety in units? In dollars?
(b) What is the degree of operating leverage?
(c) If the company can increase unit sales by 20 percent, what percentage increase will it experience in income? Prove your answer using an income statement.
(d) Use original data. If the company increases advertising by $65,000, sales in units will increase by 8 percent. What will be the new break-even point? The new degree of operating leverage?