Athletico, Inc. manufactures warm-up suits. The company’s projected income for the coming year based on sales of 160,000 units is as follows: Sales……………… $8,000,000 Operating expenses: Variable expenses…….. $2,000,000 Fixed expenses……… 3, 000,000 Total expenses………….. $ 5,000,000 Net income……………. $ 3,000,000 Required: In completing the following requirements, ignore income taxes. 1. Prepare a CVP graph for Athletico, Inc. for the coming year. 2. Calculate the firm’s break-even point for the year in sales dollars. 3. What is the company’s margin of safety for the year? 4. Compute Athletico’s operating leverage factor, based on the budgeted sales volume for the year. 5. Compute Athletico’s required sales in dollars in order to earn income of $4,500,000 in the coming year. 6. Describe the firm’s cost structure. Calculate the percentage relationships between variable and fixed expenses and sales revenue.
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