Sales (19,500 units x $30 per unit). $585,000 Variable expenses 409,500 Contribution margin Fixed expenses.. Net operating loss . 175,500 180,000 $ (4,500) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. 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 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 $60,000 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 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $9,750? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $72,000 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 26,000 units next month. Prepare two contribution format 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.)
Sales (19,500 units x $30 per unit). $585,000 Variable expenses 409,500 Contribution margin Fixed expenses.. Net operating loss . 175,500 180,000 $ (4,500) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. 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 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 $60,000 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 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $9,750? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $72,000 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 26,000 units next month. Prepare two contribution format 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.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Sales (19,500 units x $30 per unit).
$585,000
Variable expenses
409,500
Contribution margin
Fixed expenses..
Net operating loss .
175,500
180,000
$ (4,500)
Required:
1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales.
2. 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 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 $60,000 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 75 cents per
unit. Assuming no other changes, how many units would have to be sold each month to attain a target
profit of $9,750?
5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit.
However, fixed expenses would increase by $72,000 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 26,000 units next month. Prepare two contribution format
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.)
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