Use the information below to answer the following questions:

	Original	Scenario 1	Scenario 2
Sales	3,726,000	4,560,624	4,560,624
- Variable Costs	801,900	1,071,498.78	1,129,331.81
= Contribution Margin	2,924,100	3,489,125	3,431,292
- Fixed Costs	1,352,000	1,352,000	1,372,000
= Profit	1,572,100	2,137,125	2,059,292
Unit Contribution Margin	18.05	15.8366	14.7089
Unit Contribution Margin Ratio	78.4783%	76.5054%	75.2373%
Breakeven Units	74,903	85,372	93,277
Breakeven Sales Dollars	1,722,770.08	1,767,194.71	1,823,562.60
Breakeven Units With Target Profit	163,546	186,403	202,055
Breakeven Sales With Target Profit	3,761,551.25	3,858,549.41	3,950,166.23
Margin of Safety Dollars	2,003,229.92	2,793,429.29	2,737,061.40
Margin of Safety Ratio	53.76%	61.25%	60.02%
Degree of Operating Leverage	1.86	1.63	1.67
% Change in Profit		58.68%	51.64%
New Operating Profit		3,391,144.52	3,122,646.15

1. In this situation, are you able to use the degree of operating leverage to estimate the new profit for scenarios 1 & 2? Why/ why not?

2. Which of the three scenarios do you recommend the company use and why. Support your recommendation.

Answer rating: 100% (QA)

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