Question $2(20$ marks$)$ Bubble Delight sells bubble milk tea for $$20$ per unit. Variable expenses are $$8$ per unit, and fixed expenses total $$180,000$ per year.

Its operating results for last year were as follows:

Sales $$500,000$

Variable expense $200,000$

Contribution Margin $$300,000$

Fixed expense $180,000$

Net operating Income $$120,000$

Required:

$($a$)$ Calculate the product's CM ratio. $(2$ marks$)$

$($b$)$ Use the CM ratio to determine the break$-$even point in dollar sales. $(2$ marks$)$

$($c$)$ Assume this year's unit sales increase by $4,500$ units. If the fixed expenses do not change, calculate the change in net operating income. $(2$ marks$)$

$($d$)($i$)$ Calculate the degree of operating leverage based on last year's sales. $(2$ marks$)$

$($ii$)$ Assume the president expects this year's unit sales to increase by $20\%.$ Using the degree of operating leverage from last year, calculate the percentage increase in net operating income of the company. $(2$ marks$)$

$($e$)$ The sales manager is convinced that a $15\%$ reduction in the selling price, combined with a $$20,000$ increase in advertising, would increase this year's unit sales by $25\%.$ Calculate this year's net operating income if his ideas are implemented. Determine and explain whether you would recommend implementing the sales manager's suggestions. $(5$ marks$)$

$($f$)$ The president does not want to change the selling price. Instead, he wants to increase the sales commission by $$1$ per unit. He thinks that this move, combined with some increase in advertising, would increase this year's unit sales by $25\%.$ How much could the president increase this year's advertising expense and still earn the same $$120,000$ net operating income as last year? $(5$ marks$)$