Ans.

1. Unit Contribution Margin = Selling Price per unit - Variable Cost per unit

Unit Contribution Margin = $ 100 - $ 82 = $ 18

Contribution Margin Ratio = Selling Price per unit - Variable Cost per unit / Selling Price *100

Contribution Margin Ratio = $100 - $82 / $100 *100= 18%

2.

Break even points in units = Fixed Expenses / Contribution per unit

Break even points in units = $ 230,000 / $ 18 = 12,777.77 or 12,778 units

3.

To achieve target income of $ 90,000

Sales (in dollars )= Target Income + Fixed Expenses / Contribution Margin Ratio

Sales (in dollars )= $ 90,000 + $ 230,000 / 18% = $1,777,777.77 or $1,777,778

4.

Margin of Safety (in units) = Current sales unit - Break Even point

Margin of Safety (in units) = 16,000 - 12,778 = 3,222 units

Margin of Safety % =Current sales unit - Break Even point / Current Sales units *100

Margin of Safety % =16,000 - 12,778 / 16,000 * 100 = 20.1375 % or 20.14%

5.

So this proposal should be accepted as it will increase the profits.