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16 views1 page

Q

Uploaded by

Jennifer Lee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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qSales (13,200 units × $40 per unit) $528,000

Variable expenses 316,800


Contribution margin 211,200
Fixed expenses 235,200
Net operating loss $(24,000)
1. Compute the company’s CM ratio and its break-even point in both
unit sales and dollar sales.
2. The president believes that a $6,800 increase in the monthly
advertising budget, combined with an intensified effort by the sales
staff, will result in an $89,000 increase in monthly sales. If the
president is right, what will be the effect on the company’s monthly
net operating income or loss?
3. Refer to the original data. The sales manager is convinced that a
10% reduction in the selling price, combined with an increase of
$31,000 in the monthly advertising budget, will double unit sales.
What will the new contribution format income statement look like if
these changes are adopted?
4. Refer to the original data. The Marketing Department thinks that a
fancy new package for the laptop computer battery would help sales.
The new package would increase packaging costs by $0.60 cents
per unit. Assuming no other changes, how many units would have to
be sold each month to earn a profit of $4,100?
5. Refer to the original data. By automating, the company could
reduce variable expenses by $3 per unit. However, fixed expenses
would increase by $55,000 each month.
A. Compute the new CM ratio and the new break-even point in both
unit sales and dollar sales.
CM ratio 45%
Break-even points in units 183
Break-even points in dollars 7,305

B. Assume that the company expects to sell 20,700 units next month.
Prepare two contribution format income statements, one assuming
that operations are not automated and one assuming that they are.
C. Would you recommend that the company automate its operations?
1. Yes
2. No

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