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    Income Statement and Target Profit

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    I have 2 questions in this. The first one is regarding a price reduction and re-doing the contribution format, I understand how to do it with a price increase but the reduction is throwing me off.

    The second part is doing a formula to get the target profit, I got the first part of this but I'm not sure I used the correct formula and the second part is asking for the alternative calculation, and I don't know how to get that.

    Thanks for your help!

    PEM, INC.

    Information from recent month's income statement:

    Units sold
    Sales price per unit
    Less variable expenses
    Contribution margin
    Less fixed expenses
    Net operating loss

    Information for Part 2:
    Increase in monthly advertising budget
    Increase in monthly sales

    Information for Part 3:
    Reduction in selling price
    Increase in monthly advertising budget
    Increase in monthly unit sales

    Information for Part 4:
    Increase in packaging cost per unit
    Targeted profit each month

    Information for Part 5:
    Reduction in variable costs per unit
    Increase in monthly fixed costs
    Expected sales in units

    Check figures:
    (3) Net Loss
    (5a) Break-even units


    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 contribution format 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?

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    Solution Summary

    The solution explains how to prepare a contribution margin income statement and units needed for a given target profit.