Baker Company has a product that sells for $20 per unit.

The variable expenses are $12 per unit, and

fixed expenses total $30,000 per year.
Total fixed costs = 30000 selling price = 20 variable cost = 12

Required:
a. What is the total contribution margin at the break-even point?
At break-even point, total sales = total costs
total sales = total variable + total fixed cost
total sales - total variable cost = total fixed cost
total CM = total fixed cost
30000

b. What is the contribution margin ratio for the product?

(selling price – variable cost) / selling price
8/20 = 0.40*100
40%

c. If total sales increase by $20,000 and fixed expenses remain unchanged, by how much
would net operating income be expected to increase?
Target sales $ = (total fixed cost + target profit) / contribution margin ratio)
20000 = (0 + target profit) / 40%
a = $8000

Target sales (units) = (Fixed costs+ desired profit)/ contribution per unit
(20000/20) = (0 + a) / (20-12)
1000 = a/8
a = $8000