Sales (13,500 units $30 per unit) Variable expenses Contribution margin Pixed ex

Question

Sales (13,500 units $30 per unit) Variable expenses Contribution margin Pixed expenses Net operating loss $ 405,000 202,500 202,500 225,00 (22,500 Print Required 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales 2. The president believes that à $6,200 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $80,000 increase in monthly sales. If the president is right, what will be the increase (decrease) in the company's monthly net operating income? 3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $30,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)? 4. Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase packaging costs by 0.70 cents per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,200? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit However, fixed expenses would increase by $54,000 each month. a. Compute the new CM ratio and the new break-even point in unit sales and dollar sales. b. Assume that the company expects to sell 20,600 units next month. Prepare two contribution format income statements, one ferences colesb,ution format income-renta nor unit andt hacie ne swall

Explanation / Answer

1 Contribution margin ratio=Contribution/Sales=202500/405000=0.50 Break even point in $=Fixed cost/Contribution margin ratio=225000/0.50=450000 Break even point in units=Fixed cost/Contribution per unit Contribution per unit=202500/13500=15 Break even point in units=225000/15=15000 units 2 Increase in sales=80000. Increase in contribution=Increase in sales*CM ratio=80000*0.50=40000 Increase in profit=Increase in contribution-Increase in fixed cost=40000-6200=33800 3 Sales (27000*27) 729000 Less:Variable expenses (27000*15) 405000 Contribution margin 324000 Fixed expense (225000+30000) 255000 Net operating income 69000 4 Number of units required to achieve the desired profit=(Fixed cost+Desired profit)/Contribution per unit Contribution per unit=Sales-Variable cost=30-(15+0.70)=14.30 Number of units required to achieve the desired profit=(225000+4200)/14.30=16028 units 5 a. Contribution margin ratio=Contribution/Sales Contribution per unit=Sales-Variable cost=30-(15+3)=12 Contribution margin ratio=12/30=0.4 Break even point in $=Fixed cost/Contribution margin ratio Fixed cost=225000+54000=279000 Break even point in $=279000/0.4=$697500 Break even point in units=Fixed cost/Contribution per unit=279000/12=23250 units b. Contribution income statement Not automated Automated Total Per unit % Total Per unit % Sales (20600*30) 618000 30 100 618000 30 100 Less:Variable expenses 309000 15 50 370800 18 60 (20600*15) (20600*18) Contribution margin 309000 15 50 247200 12 40 Fixed expense 225000 279000 (225000+54000) Net operating income 84000 -31800

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