Contribution margin ratio is calculated by taking (Contribution / Sales) x 100 Contribution=66-36 CM = (30/66) x 100 = 45.45% Contribution= 66-39 CM = (27/66) x 100 = 40.90%

Under the new plan, profitability at very high-volume levels would be low in comparison to very high-volume levels under the old plan. 8.) Air Purifier Inc. computes its break-even point strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $2,450,000, but 15 percent of this value is represented by depreciation. Its contribution margin (price minus variable cost) for each unit is $40. How many units does the firm need to sell to reach the cash break-even point? Cash related fixed costs = Total Fixed Costs – Depreciation = $2,400,000 – 15% (2,400,000) = $2,400,000 – $360,000 = $2,040,000 BE = $2,040,000 / $30 = 68,000 Units 10.) The Sterling Tire Company’s income statement for 20X1 is as follows: Given this income state, compute the following: Q = 20,000 P = $60 VC = $30 FC = $400,000 I = $50,000 a. Degree of operating leverage DOL= (Q (P - VC)) / (Q (P - VC) FC) DOL = (20,000 ($60 - $30)) / (20,000 ($60 - $30) - $400,000) = 3 b. Degree of financial leverage DFL = (EBIT / EBIT - I) DFL = ($200,000) / ($200,000 - $50,000) = 1.333. c. Degree of combined leverage DCL= (Q (P - VC)) / (Quantity (P - VC) – FC - I) DCL = (20,000 ($60 - $30)) / (20,000 ($60 - $30) -$400,000 - $50,000) = 4 d. Break-even point in units BE = (FC) / (P - VC) Sales (20,000 tires at $6 each) $1,200,000 Less: Variable costs (20,000 tires at $30) $ 600,000