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Assume that your company has had the following recent overhead history:

	Machine Hours	Manufacturing overhead
Oct	3000	$202,000
Nov	5000	$304,000
Dec	7000	$400,000
Jan	2500	$175,000

Required

A. Using the high-low method, find both (1) the fixed component of monthly overhead, and (2) the variable component of manufacturing overhead cost per machine hour.

B. Using your fixed and variable components from (a), estimate the manufacturing overhead costs for the two months described in the table which you did not use for your high-low estimates. How much are these high-low estimates off, and are these estimates higher than the actual values or lower?

You will continue to use your estimates from part (a) for the rest of this problem.
Assume that you expect machine hours in February to be 4,000. Your firm's contribution margin per unit is $36.50

(c) How many units must you sell to break even? (Round your answer to the nearest whole unit.)

(d) If you wish a monthly operating income of $37,600, how many units must you sell?

(e) If your current monthly sales total $432,500, what is your margin of safety? (Round your answer to the nearest dollar.)

Assume that you project that your February unit sales will be the number you found in part (d). 

You are considering two options to improve performance: 

(A) revise labor scheduling, which would raise the contribution margin ratio to 48% by lowering VC/unit, or

(B) run a new TV ad that should increase unit sales volume by 5%. Either option would cost $5,000, and you can only do one of them. You will not change your price.

(f) How much would February's operating income rise or fall, relative to your original projections, for each option?

(g) By what percentage would you need to increase unit sales to make option (B)'s operating income exactly equal to that under the original projection?

(h) By what percentage would you need to increase unit sales to make option (B)'s operating income exactly equal to that under option (A)?

Now assume that you have been analyzing only one of your firm's products. (The fixed costs you've been using apply to the whole firm, though--they won't change as we consider the new product mix here.)

Your firm's other product, which accounts for about 36% of your total sales mix, has a contribution margin ratio of 54%.

Assume that you will not accept either of the performance options considered above, and that your contribution margin per unit for the product you considered above remains at $36.50.

(i) Determine the total monthly dollar sales that your firm must generate to break even, considering both of your products.

(j) Determine the total monthly dollar sales that your firm must generate earn an operating income of $37,600, considering both of your products.

(k) Do you think your company is currently optimizing its sales mix? Explain your answer.

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