Use the information below to answer the following questions: Original Scenario 1 Scenario 2 Sales 3,726,000 4,560,624
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Question:
Use the information below to answer the following questions:
| Original | Scenario 1 | Scenario 2 | |
| Sales | 3,726,000 | 4,560,624 | 4,560,624 |
| - Variable Costs | 801,900 | 1,071,498.78 | 1,129,331.81 |
| = Contribution Margin | 2,924,100 | 3,489,125 | 3,431,292 |
| - Fixed Costs | 1,352,000 | 1,352,000 | 1,372,000 |
| = Profit | 1,572,100 | 2,137,125 | 2,059,292 |
| Unit Contribution Margin | 18.05 | 15.8366 | 14.7089 |
| Unit Contribution Margin Ratio | 78.4783% | 76.5054% | 75.2373% |
| Breakeven Units | 74,903 | 85,372 | 93,277 |
| Breakeven Sales Dollars | 1,722,770.08 | 1,767,194.71 | 1,823,562.60 |
| Breakeven Units With Target Profit | 163,546 | 186,403 | 202,055 |
| Breakeven Sales With Target Profit | 3,761,551.25 | 3,858,549.41 | 3,950,166.23 |
| Margin of Safety Dollars | 2,003,229.92 | 2,793,429.29 | 2,737,061.40 |
| Margin of Safety Ratio | 53.76% | 61.25% | 60.02% |
| Degree of Operating Leverage | 1.86 | 1.63 | 1.67 |
| % Change in Profit | 58.68% | 51.64% | |
| New Operating Profit | 3,391,144.52 | 3,122,646.15 |
1. In this situation, are you able to use the degree of operating leverage to estimate the new profit for scenarios 1 & 2? Why/ why not?
2. Which of the three scenarios do you recommend the company use and why. Support your recommendation.
Expert Answer:
Solution Answer 1 We are not able to use the degree of operating leverage to estimate the new profit ... View the full answer
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