Cottonwood Company reports the following operating results for the month of April. COTTONWOOD COMPANY CVP Income Statement For the Month Ended Ap...

Q:


Cottonwood Company reports the following operating results for the month of April.

COTTONWOOD COMPANY

CVP Income Statement

For the Month Ended April 30, 2011

Total per Unit

Sales (8,600 units) $498,800 $58.00

Variable costs 264,364 30.74

Contribution margin 234,436 $27.26

Fixed expenses 179,916

Net income $ 54,520

Management is considering the following course of action to increase net income: Reduce the selling price by 10%, with no changes to unit variable costs or fixed costs. Management is confident that this change will increase unit sales by 31%.

(a) Using the contribution margin technique, compute the break-even point in units and dollars and margin of safety in dollars, assuming no changes to selling price or costs.

(b) Using the contribution margin technique, compute the break-even point in units and dollars and margin of safety in dollars, assuming changes to sales price and volume as described above.

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