PROBLEM $1(20$ POINTS$)$ Show All Your Work

Lain Manufacturing manufactures and sells Sofas. The company's contribution format income statement for the most recent year is as follows: Sales for the year were $6,500$ units

Sales

$$280,000$

Variable Expenses $$175,000$

Fixed Expenses $$70,000$

REQUIRED:

Compute the CM Ratio and the Variable Expense Ratio

Compute the Break$-$Even Point in BOTH unit sales and dollar sales

Assume that next year management wants the company to earn a profit of at least $$175,000.$ How many units will have to be sold to meet this target profit?

Refer to the original data, compute the Margin of Safety in BOTH dollar and percentage

Compute the degree of operating Leverage.

Assume that through more intense sales effort, sales will increase by $5\%.$ By what percentage would you expect Operating Income to increase? Utilize operating leverage.

In an effort to increase sales and profits, management is considering using a higher quality material. This would increase variable costs by $$7$ per year and we could eliminate a salaried employee who is paid $$28000$ per year. Assuming the changes are made, compute company's new Break$-$Even Point in BOTH unit sales and Dollar Sales.

Please answer questions $5-7$