l newconnect mheducation.conm Chapter 5 Due to erratic sales of its sole product
ID: 2331300 • Letter: L
Question
l newconnect mheducation.conm Chapter 5 Due to erratic sales of its sole product-a high-capacity battery for laptop computers difficulty for some time. The company's contribution format income statement for the most Inc, has been experiencing financial recent month is given below Lea (12,900 units 530 per unit) 384,000 Conte Lbut ion margin Fixed expenses set operating loss 1 Compute the company's CM ratio and its treak-even point in unit sales and dollar sales 2. The president believes that a $6.400 staff, n the monthly advertising budget, combined with an intensified effort by the sales will result in an $85,000 increase in monthly sales. If the president is right, what will be the increase (decreasej in the company's monthly net operating income 3 Refer to the on rai data The sales manager is conmeed that a 10% reduction in the sell es price combined wth an no ease or 0 in the monthly advertising budget, will double unit sales ir the sales manager is right, what will be the revised net ncome poss)? 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 060 cents per unit Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4100? 5 Refer to the original data By automating, the company could reduce vaniable expenses by $3 per unit However, fixed expenses would increase by $57000 each month a Compute the new CM ratio and the new break oven point in unit sales and dollar sales b Assume that the company expects to sel 21000 units next month Prepare two coneibution format income statemenes one essuming that operaions are not automated and one assuming that they are (Show data on a per unt and percentage basis as wel c Would you recommend that the company automate ts operations tAssuming that the company expects to sel 210o0 Commplete this question by entering your answers in the tabs below. es sc Nest 7 3 5 8Explanation / Answer
Answer: Requirement 1 The company CM ratio and break-even point would be as follows Sales 384000 100% Less: Variable cost 230400 60% Contribution margin 153600 Contribution margin ratio 40% ($153,600*100/384,000) Contrbution/Sales*100) Fixed Cost 171600 Break even point (Sales dollars) =Fixed cost/Contribution margin ratio =$171,600/40% 429000 Break-even point (In units) =$429,000/$30 14300 Units Requirement 2 With $6,400 increase in advertising expenditure, the companies new operaing income would be : Sales 469000 ($384,000+85,000) Less: Variable cost 281400 ($469,000*60%) Cotribution margin 187600 ($355,000*40%) Less: Fixed cost 178000 ($171,600+6,400) Net operating income 9600 ($187,600-178000) Requirement 3 Current Selling price is $30, if it is reduced by 10% new selling price would be $27 (i.e $30*90%) Current Sales units are 12,800 and double of it would be 25,600 units (i.e. 12.800*2) The companies new operaing income would be : Sales 691200 (25,600*$27) Less: Variable cost 414720 ($691200*60%) Cotribution margin 276480 ($691200*40%) Less: Fixed cost 204600 ($171,600+33,000) Net operating income 71880 ($276,480-204,600) Requirement 4 The number of units to be sold to earn $4,100 would be : Current Variable cost per unit is $18 (i.e. $230,400/12,800 units), New variable cost after fancy packaging would be $18.60 New Contribution margin would be $11.40 (i.e. $30-18.60) Break-even point (In units) =(Fixed Cost +Target profit)/Contribution margin per unit =(171,600+4,100)/$11.4 15,412 units
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