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Waterways Continuing Problem-6 (Part 1) The vice-president of sales and marketing, Madison Tremblay, is trying to plan for the coming year in terms of production needs to meet the forecasted sales. The board of directors is very supportive of any initiatives that will lead to increased profits for the company in the upcoming year. Waterways markets a simple water controller and timer that it mass produces. During 2016, the company sold 332,500 units at an average selling price of $8 per unit. The variable expenses were 51,429,750, and the fixed expenses were $688,000.

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Answer 1

2016 332,500 Given Data: Year of Operations # of Units Average Selling Price Variable Expenses Fixed Expenses 8 1,429,750 688,000 es es Particulars Sales Less : Variable Expenses Contribution Less : Fixed Expenses Net Income 2,660,000 (1,429,750) 1,230,250 (688,000) 542,250 $ 1. Determination of the Product's Contribution Margin Ratio ? Contribution Margin Ratio = Contribution / Sales * 100 Contribution Margin Ratio = $ 1,230,250 / $ 2,660,000 * 100 Contribution Margin Ratio = 46.25% 2. Determination of the Company's Break-Even Point: Break-Even Point = Fixed Expenses / Contribution Margin Ratio Break-Even Point = $ 688,000 / 46.25% Break-Even Point (In Units) = 185,946 Break-Even Point (In Dollars) = $ 1,487,568 3. Determination of the Margin of Safety, both in Dollars and as a ratio ? Margin of Safety is the amount of sales the company made over and above the break-even point. Total Sales $ 2,660,000 Less : Break-Even Point $ (1,487,568) Margin of Safety (In Dollars) $ 1,172,432 Margin of Safety (In Units) $ 146,554

$ 4. If the Net Income to increase by 10%, the additional units to be sold? Net Income (Revised) $ 596,475 Add: Fixed Expenses 688,000 Contribution (Revised) $ 1,284,475 Contribution Ratio 46.25% Revised Sales (Contribution / Contribution $ 2,777,243.24 Margin Ratio) # of Units $ 347,155.41 ($ 2,777,243 / $ 8) Additional Units to be sold 14,655.41 (347,155 - 332,500)