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Dominion Sports, Inc., produces high-quality sports equipment. The company's Racket Division manufactures three tennis rackets the Standard, the Deluxe, and the Pro--that are widely used in amateur play. Selected information on the rackets is given below: Standard Deluxe Pro Selling price per racket $40.00 $60.00 $90.00 Variable expenses per racket: Production $22.00 $27.00 $31.50 Selling (5% of selling price) $2.00 $3.00 $4.50 All sales are made through the company's own retail outlets. The Racket Division has the following fixed costs: Per Month Fixed production costs $120,000 Advertising expense 100,000 Administrative salaries 50,000 Total $270,000 Sales, in units, over the past two months have been as follows: Standard Deluxe Pro Total April 2,000 1,000 5,000 8,000 May 8,000 1,000 3.000 12.000 Required: 1. Prepare contribution format income statements for April and May. Use the following headings: Standard Deluxe Pro Total Amount % Amount % Amount % Amount % Sales Etc. 2. Upon seeing the income statements in (1) above, the president stated, "I can't believe this! We sold 50% more rackets in May than in April, yet profits went down. It's obvious that costs are out of control in that division." What other explanation can you give for the drop in net operating income? 3. Compute the Racket Division's break-even point in dollar sales and Margin of Safety for April. 4. Compute the number of units Dominion Sports need to sell to break-even of each product. 5. The Marketing department believes that by increasing the advertising expense to $150,000 in May, it can increase sales of each product by 15%, would you suggest this increase of advertising expense, why? 6. Assume that sales of the Standard racket increase by $20,000. What would be the effect on net operating income? What would be the effect if Pro racket sales increased by $20,000

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