1. Alex Miller, Inc., sells car batteries to service stations for an average of $30 each.

The variable cost of

each battery is $20 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the
company total $8,000.

Required:
a. What is the breakeven point in batteries? And in $?
b. What is the margin of safety, assuming sales total $60,000?
c. What is the breakeven level in batteries, assuming variable costs increase by 20%?
d. What is the breakeven level in batteries, assuming the selling price goes up by 10%, fixed
manufacturing costs decline by 10%, and other fixed costs decline by $100?

2. Tom's Tire Tower, Inc., sells tires for $110. The unit variable cost per tire is $85. Fixed costs total
$475,000.

Required:
a. What is the contribution margin per tire?
b. What is the breakeven point in tires?
c. How many tires must be sold to earn a pretax income of $450,000?
d. What is the margin of safety, assuming 33,000 tires are sold?

3. Atlanta Radio Supply sells only two products, Product X and Product Y.

Product X Product Y Total

Selling price $25 $45
Variable cost per unit $20 $35
Quantity sold 150,000 100,000
Total fixed costs $350,000

Atlanta Radio Supply has a tax rate of 25%.

a. What is the breakeven point in units for each product?

b. Calculate the net income at the stated units sold.
c. How many units of each product should be sold if a target operating income of
$1,900,000 is required?

4. Sports Fanatic earned net income of $100,000 during 2008. The company wants to earn net
income of $40,000 more during 2009. The company's fixed costs are expected to be $84,000,
and variable costs are expected to be 30% of sales. Assume a tax rate of 40%. Determine the
required sales to meet the target net income during 2009.

5. Carter Co. produces a single product that sells for $120. Variable costs per unit equal $40.
The company expects total fixed costs to be $24,000 for the next month at the projected sales
level of 800 units.
a. Suppose that Carter Co.'s management believes that a $6,400 increase in the monthly
advertising expense will result in considerable increase in sales. How much must sales increase
in order to get the same profit as before the increase in advertising expense?

b. Refer back to the original data. Suppose that Carter Co.'s management believes that a 10%
reduction in selling price will result in a 10% increase in sales. What will be the change in profit
if this proposed reduction in selling price is implemented?

c. Refer back to the original data. At a sales level of 1,000 units, what maximum amount can be
spent on advertising if a net income of $34,450 is desired? (Income tax rate is 35%)