1. A contribution format income statement based upon the 72,000 projected sales units for the year has been prepared showing the contribution format income statement in total dollars for 72,000 units sold, per unit through contribution margin, and as a percentage through contribution margin (creates three columns). From the contribution format income statement, the cost structure percentages and the break-even point in volume of units and sales dollars have been computed. Discuss what the cost structure percentages, break-even point in units and break-even point in sales dollars means for Water Play.

Water Play, Inc.
Contribution Income Statement
For Year Ended December 31, 20XX
	Total		Per Unit	Percentage
Sales revenue		$ 2,160,000,000	$ 30,000	100.0%
Variable costs:				0.0%
Direct materials	$ 540,000,000		7,500	25.0%
Direct labor	208,008,000		2,889	9.6%
Variable overhead	345,000,000		4,792	16.0%
Variable selling expenses	172,800,000		2,400	8.0%
Variable administrative expenses	-		-	0.0%
Total variable costs		1,265,808,000	17,581	58.6%
Contribution margin		894,192,000	12,419	41.4%
Fixed costs:
Fixed overhead	221,400,000
Fixed selling expenses	215,987,500
Fixed administrative expenses	147,762,500
Total fixed costs		585,150,000
Net operating income		$ 309,042,000
Break-even point in units	Total fixed costs	585,150,000	47,116
	CM per unit	12,419
Break-even point in dollars	Total fixed costs	585,150,000	1,413,481,668
	CM percentage	41.4%
Margin of safety in dollars	Budgeted sales revenue	2,160,000,000
	-Break-even sales	1,413,481,668
	Margin of safety		746,518,332
Margin of safety percentage	Margin of safety	746,518,332	34.6%
	Budgeted sales revenue	2,160,000,000
Operating leverage ratio	Total contribution margin	894,192,000	2.89
	Net operating income	309,042,000
Cost structure:
Total variable costs		1,265,808,000	68.4%
Total fixed costs		585,150,000	31.6%
Total costs		1,850,958,000	100.0%