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Basic CVP Concepts Katayama Company produces a variety of products. One division makes neoprene wetsuits. The division's projected income statement for the coming year is as follows: Sales (65,000 units) $15,600,000 Less: Variable expenses 8,736,000 Contribution margin $6,864,000 Less: Fixed expenses 4,012,000 Operating income $2,852,000 Required: 1. Compute the contribution margin per unit, and calculate the break-even point in units. Round unit contribution margin to the nearest cent and break-even point to nearest whole unit. Unit contribution margin Break-even point units Compute the contribution margin ratio and the break-even point in dollars. Enter the contribution margin ratio as a decimal value rounded to two decimal places, and use this rounded value in the second calculation. Contribution margin ratio Break-even point (rounded to the nearest dollar) 2. The divisional manager has decided to increase the advertising budget by $140,000 and cut the average selling price to $200. These actions will increase sales revenues by $1 million. Will this improve the division's financial situation? Prepare a new income statement to support your answer. In your calculations, round the variable cost ratio to three decimal places. Katayama Company Income Statement 3. Suppose sales revenues exceed the estimated amount on the income statement by $612,000. Without preparing a new income statement, determine by how much profits are underestimated. 4. How many units must be sold to earn an after-tax profit of $1.254 million? Assume a tax rate of 34 percent. Round your answer to the nearest whole unit. units 5. Compute the margin of safety in dollars based on the given income statement. Round your answer to the nearest dollar. 6. Compute the operating leverage based on the given income statement. Round your answer to three decimal places. Use the rounded answer in the subsequent computation. If sales revenues are 20 percent greater than expected, what is the percentage increase in profits? Round the percentage to two decimal places

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