Conribution Margin and Contribution Format Income Statements
I'm looking for help on how to solve this problem.
Memofax, Inc. produces memory enhancment kits for fax machines. Sales have been very erratic with some months showing a profit and some months showing a loss. THe company's contribution format income statement for the most recent month is given below:
Sales (13,500 units at $20 per unit)........$270,000
Net operating loss..........................$(9,000)
Compute the company's CM ratio and its break-even point in both units and dollars.
The sales manager feels that an $8,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $70,000 increase in monthly sales. If the sales manager is right, what will be the effect on the compnay's monthly net operating income or loss? I am trying to use the incremental approach to solve this problem.
Referring to the orginal data. The president is convinced that a 10% reduction in the selling price, combined with an increase of $35,000 in the monthly advertising budget, will cause unit sales to doubleWhat will the new contribution format income statement look like if these changes are adopted?
Referring to the original data again. The company's advertising agency thinks tht a new package would help sales. The new package being proposed would increase packaging costs by $0.60 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,500?
Referring back to the orginal data again. By automating certain operations, the company could slash its variable expenses in half. However, fixed costs would increase by $118,000 per month.
a. Compute the new contribution margin and the new break-even point in both units and dollars.
b. Assume that the company expects to sell 20,000 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are.
c. Would you recommend that the company automate its operations? Explain.
I have spent a lot of time on ths problem and want to be sure that I am on the right track with all of my formulas and solutions. Thank you.
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