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de 2304 After Class Practice 3-1 (2 HW grades) richardson Radio Company manufactures small radios. Last year the company sold 25,000 units with the following results. Sales $625,000 Variable costs $375,000 Fixed costs 150,000 525.000 Operating income $100,000 In an attempt to improve its product, the company CFO has made some suggestions. He suggests replacing a component part that has a cost of $2.50 with a new and better part costing $4.50 per unit in the coming year. A new machine would also be needed to increase plant capacity and would increase fixed costs by $3,000 a year. (Always return to the original data unless otherwise stated.) 1. What is the current contribution margin per unit? Contribution margin %? Total contribution margin? 2. What would the company's operating income be if they sold 26,000 units? 3. What would the company's operating income be if sales were $700,000? (Use the CM%) 4. What was Richardson Radio Company's break-even point in number of units last year? 5. How many units of product would the company have had to sell in the last year to earn $140,000? Answer the following questions assuming the suggested changes are made. 6. What is the contribution margin per unit? Contribution margin %? Total contribution margin? 7. What would the company's operating income be if they sold 26,000 units? 8. What would the company's operating income be if sales were $700,000? (Use the CM%) if Richardson Radio Company holds the sales price constant and makes the suggested changes, how many units of product must be sold in the coming year to break even? 10. If the suggested changes are made, how many units of product would the company have had to sell to earn $140,000? 11. If the firm holds the sales price constant and makes the suggested changes, how many units of product will the company have to sell to make a net income of $100,000 (assume a 20% tax rate) 12. If Richardson makes the suggested changes, what selling price must be charged to make the same profit as last year? 13. What was Richardson's margin of safety in dollars and % last year? If Richardson makes the suggested changes this year and sells 25,000 units, what will be the margin of safety in dollars and % this year? 14. What was Richardson's degree of operating leverage last year? If Richardson makes the suggested changes this year and sells 25,000 units, what will be the degree of operating leverage? Check figures: 5. 29,000 units 9. 19,125 units