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d) Compute Safety Margin e) Compute the amount that must be sold to increase operating income (net income) 100 %. f) Marketing manager believes there will be 10% increase in sales if Company decreases price by 10%. Should price be decreased? Explain. g) If Company decreases price by 10%, how many units must be sold to maintain current profit?

d) Compute Safety Margin e) Compute the amount that must be sold to increase operating income (net income) 100 %. f) Marketing manager believes there will be 10% increase in sales if Company decreases price by 10%. Should price be decreased? Explain. g) If Company decreases price by 10%, how many units must be sold to maintain current profit?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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d) Compute Safety Margin

e) Compute the amount that must be sold to increase operating income (net income) 100 %.

f) Marketing manager believes there will be 10% increase in sales if Company decreases price by 10%. Should price be decreased? Explain.

g) If Company decreases price by 10%, how many units must be sold to maintain current profit? 

Pennell Company gathered the following information for the year ended December 31, 2008: 2. Fixed costs: Manufacturing Marketing $180,000 55,000 Administrative 25,000 Variable costs: Manufacturing Marketing $112,500 37,500 Administrative 45,000 During the year, Pennell produced and sold 75,000 units of product at a sale price of $6.60 per unit. There was no beginning inventory of product on January 1, 2008. Required: a) Prepare Contribution Margin Income Statement. b) Compute BEP (in units and TL) c) Compute Operating Leverage d) Compute Safety Margin e) Compute the amount that must be sold to increase operating income (net income) 100 %. f) Marketing manager believes there will be 10% increase in sales if Company decreases price by 10%. Should price be decreased? Explain. g) If Company decreases price by 10%, how many units must be sold to maintain current profit?
Transcribed Image Text:Pennell Company gathered the following information for the year ended December 31, 2008: 2. Fixed costs: Manufacturing Marketing $180,000 55,000 Administrative 25,000 Variable costs: Manufacturing Marketing $112,500 37,500 Administrative 45,000 During the year, Pennell produced and sold 75,000 units of product at a sale price of $6.60 per unit. There was no beginning inventory of product on January 1, 2008. Required: a) Prepare Contribution Margin Income Statement. b) Compute BEP (in units and TL) c) Compute Operating Leverage d) Compute Safety Margin e) Compute the amount that must be sold to increase operating income (net income) 100 %. f) Marketing manager believes there will be 10% increase in sales if Company decreases price by 10%. Should price be decreased? Explain. g) If Company decreases price by 10%, how many units must be sold to maintain current profit?
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