Due to erratic sales of its sole product- a high capacity battery for laptop computers- Parma Ltd. Has been experiencing difficulty for some time. The company income statement for the most recent month is given below: Sales (19500 units×$30) ……………………………………… $585 000Less variable expenses…………………………………………… 409 500Contribution margin…………………………………………….. 175 500Less fixed expenses…………………………………………………. 180 000Net loss…………………………………………………………………… (4 500) Required: 1. a) Compute the company’s CM ratio and its break-even point in both units and dollars. b) Prepare break even chart for the company using excel spread sheet. 2. a)The president believes that a $ 16 000 increase in the monthly advertising budget combined with an intensified effort by the sales staff, will result in an $80 000 increases in monthly sales. If the president is right, what will be the effect on the company’s monthly net income or loss?( Use the equation and contribution margin method) .b. Prepare break even chart using excel to show the new breakeven point 3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $ 60 000 in the monthly advertising budget will cause unit sales to double. What will the new 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 cost by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $9 750? 5. Refer to the original data. By automating certain operations, the company could reduce variable costs by $3 per unit. However, fixed costs would increase by $72 000 each month. a. Compute the CMR and the new breakeven point in both units and dollar sales b. Assume that the company expects to sell 26 000 units next month. Prepare two income statements, one assuming that operations are not automated and one assuming that they are (Show data on a per unit and percentage basis, as well as in total, for each alternative.)c. Would you recommended that the company automate its operation? Explain
Due to erratic sales of its sole product- a high capacity battery for laptop computers- Parma Ltd. Has been experiencing difficulty for some time. The company income statement for the most recent month is given below:
Sales (19500 units×$30) ……………………………………… $585 000
Less variable expenses…………………………………………… 409 500
Contribution margin…………………………………………….. 175 500
Less fixed expenses…………………………………………………. 180 000
Net loss…………………………………………………………………… (4 500)
Required:
1. a) Compute the company’s CM ratio and its break-even point in both units and dollars.
b) Prepare break even chart for the company using excel spread sheet.
2. a)The president believes that a $ 16 000 increase in the monthly advertising budget combined with an intensified effort by the sales staff, will result in an $80 000 increases in monthly sales. If the president is right, what will be the effect on the company’s monthly net income or loss?( Use the equation and contribution margin method) .
b. Prepare break even chart using excel to show the new breakeven point
3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $ 60 000 in the monthly advertising budget will cause unit sales to double. What will the new 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 cost by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $9 750?
5. Refer to the original data. By automating certain operations, the company could reduce variable costs by $3 per unit. However, fixed costs would increase by $72 000 each month.
a. Compute the CMR and the new breakeven point in both units and dollar sales
b. Assume that the company expects to sell 26 000 units next month. Prepare two income statements, one assuming that operations are not automated and one assuming that they are (Show data on a per unit and percentage basis, as well as in total, for each alternative.)
c. Would you recommended that the company automate its operation? Explain
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