Chapter 5, Problem 22P

To determine

Contribution margin:The difference between the sales revenue and the variable expenses is called a contribution margin.

Break-Even Point:A break-even point is the point where a company is neither making profit nor incurring any loss.

Target Profit Analysis:It is an analysis of how much unit sales or dollar sales value a company must be attain to realize the target profit estimated by the company.

1. The CM ratio and Break-even point in unit and dollar.

2. The increase in net operating income.

3. The revised net operating income (loss).

4. Required units to be sold to attain a target profit of $9,750.

5.

a) The new CM ratio and new break-even point in unit sales and dollar sales.

b) Preparation of two contribution format income statements.

c) Recommendation.