Cottonwood Company reports the following operating results for the month of April.

Management is considering the following course of action to increase net income: Reduce the selling price by 10%, with no changes to unit variable costs or fixed costs. Management is confident that this change will increase unit sales by 30%.

Using the contribution margin technique, compute the break-even point in units and dollars and margin of safety in dollars,

(a) Assuming no changes to selling price or costs,

(b) Assuming changes to sales price and volume as described above.

Comment on your findings.

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COTTONWOOD COMPANY CVP Income Statement For the Month Ended April 30, 2011 Total Per Unit $50.00 Sales (9,000 units) Variable costs $450,000 247,500 27.50 Contribution margin Fixed expenses $22.50 202,500 150,000 $ 52,500 Net income