Due to ematic sales of s sole preducthigh-capacity baery for laptop compuers-PEM
ID: 2547390 • Letter: D
Question
Due to ematic sales of s sole preducthigh-capacity baery for laptop compuers-PEM, Inc, has been Net eperating loss s (12,000) Required: t. Cempude the companys CM rato and its braak-evan point in both unit sales and dollar salos Break-even point in dolars 2. The president believes that a $6.200 Increase in the monthly advertising budget, combined wth an sales. if the presidert is right, what will be the efect on the company's monhly net operating income or loss? (Use he incremental approach in preparing your answer) 3. Refer to the original data. The sales manager is convinced that a 10% reduction inthe seling price. combined with an increase of $36,000 in the monthly advertising budget, will double unit sales. What will the new contribution format income statement look like id 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 $0.40 cents per unt. Assuming no other changes, how many units would have to be sold each month to earn a proft of $4,2007 (Do not round your intermediate calculations. Round your final answer to nearest whole number)Explanation / Answer
Answer 1.
CM Ratio = Contribution / Sales
CM Ratio = $105,600 / $264,000
CM Ratio = 40%
BEP (In Units) = Fixed Costs / Contribution per Unit
BEP (In Units) = $117,600 / $8
BEP (In Units) = 14,700 Units
BEP (In $ Sales) = Fixed Costs / Contribution Margin Ratio
BEP (In $ Sales) = $117,600 / 40%
BEP (In $ Sales) = $294,0000
Answer 2.
Incremental Revenue
Increase in Contribution margin - $84,000 X 40% 33,600.00
Incremental Cost
Increase in Monthly Advertising Expense 6,200.00
Net Incremental Profit (Loss) 27,400.00
Answer 3.
Contribution Format Income Statement
Sales - 26,400 Units X $20 528,000.00
Variable Expense - 26,400 Units X $12 316,800.00
Contribution 211,200.00
Fixed Expenses - $117,600 + $36,000 153,600.00
Net Income 57,600.00
Answer 4.
BEP (in Units + Target Profit) = (Fixed Cost + Target Profit) / Contribution Margin Per Unit
Contribution margin Per Unit = $20 - ($12 + $0.40)
Contribution margin Per Unit = $7.60
BEP (in Units + Target Profit) = ($117,600 + $4,200) / $7.60
BEP (in Units + Target Profit) = 16,026.32 or say 16,026 Units (Approx.)
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