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: 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)
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:
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)
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