Polaris Inc. manufactures two types of metal stampings for the automobile industry: door handles and trim kits. Fixed cost equals $146,000. Each door handle sells for $12 and has variable cost of $9; each trim kit sells for $8 and has variable cost of $5.
1. What are the contribution margin per unit and the contribution margin ratio for door handles and for trim kits?
2. If Polaris sells 20,000 door handles and 40,000 trim kits, what is the operating income?
3. How many door handles and how many trim kits must be sold for Polaris to break even?
4. Assume that Polaris has the opportunity to rearrange its plant to produce only trim kits. If this is done, fixed costs will decrease by $35,000, and 70,000 trim kits can be produced and sold. Is this a good idea? Explain.