Clemence Company is a music box manufacturer. Clemence sells a product for $20 per unit. Variable costs are $9 per unit, and fixed costs are $33,000 per year. Requirements
1. Use the income statement equation approach to compute the number of music boxes Clemence must sell each year to break even.
2. Use the contribution margin ratio CVP formula to compute the dollar sales Clemence needs to earn $38,500 in operating income for 2017. (Round the contribution margin to two decimal places.)
3. Graph Clemence’s CVP relationships. Show the breakeven point, the sales revenue line, the fixed cost line, the total cost line, the operating loss area, the operating income area, and the sales in units and dollars when an operating income of $38,500 is earned.
4. Clemence is considering a quality improvement program that will increase the variable costs by 20% and the fixed costs by $3,000. If Clemence wants to keep the breakeven point unchanged, how much should this company set the selling price?