Paradox, Inc. produces and markets a machinery component called a gromet. October monthly costs to produce 20,000 gromets are as follows:

Manufacturing Costs per unit
Direct materials (variable)	$0.60
Direct labor (variable)	0.5
Factory overhead
- variable	0.5
- fixed	0.7
	$2.30
Selling and admin expenses per unit
- variable	0.3
- fixed	0.3
Total	$2.90

Paradox sells gromets for $4.00 per unit.

a. Assuming unit sales = 20,000 units, prepare a contribution income statement for the month of October (ignore income taxes).

b. Determine Paradoxs monthly:

1. break-even point in sales units and in sales dollars.
2. Operating leverage ratio

c. Assume Paradox reduces their selling price by $0.50/unit and the number of units sold increases by 1,000:

1. Prepare a revised Contribution Income Statement
2. Determine the companys new break-even point in unit sales and sales dollars.
3. Determine the companys new operating leverage ratio.

d. Using the original facts, before part c., compute Paradoxs % change in profits, if unit sales increase by 10% .

Answer rating: 100% (QA)

a Contribution Income Statement for October Sales 20000 units 400 80000 Variable Costs Direct Materials 20000 units ... View the full answer