Problem 1 - RGS Company distributes a single product called a Sailsafe. The companys sales and expenses for last month follow:

	Total	Per Unit
Sales	$ 800,000	$ 80
Variable expenses	600,000	60
Contribution margin	200,000	$ 20
Fixed expenses	120,000
Net operating income	$ 80,000

Required (show your work):

1. What is the monthly break-even point in unit sales and in dollar sales?

2. How many units would have to be sold each month to attain a target profit of $68,400?

3. Verify your answer in part 2 by preparing a contribution format income statement at the target sales level.

4. Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms.

5. Refer to the original data. What is the companys CM ratio? If the company can sell more units thereby increasing sales by $80,000 per month and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

6. Refer to the original data. What is the degree of operating leverage (DOL)?

7, Refer to the original data. Assume the president of the company believes sales will increase by 16% next year, using the DOL you calculated in part 6, calculate the percentage increase in net operating income that can be expected.

8. Refer to the original data. Assume the sales manager is convinced that a 12% reduction in the selling price, combined with a $60,000 increase in advertising, would increase sales by 25%. If the sales manager is right, what would be the net operating income if his ideas are implemented?