Question

A company produces memory enhancement kits for fax machines. Saleshave been very erratic, with some months showing a profit and somemonths showing a loss. The company's contribution format incomestatement for the most recent month is given below:

Sales (12,600 units at $40 per unit)	$	504,000
Variable expenses		252,000
Contribution margin		252,000
Fixed expenses		282,000
Net operating loss	$	(30,000)

Required:
1.	Compute the company's CM ratio and its break-even point in bothunits and dollars.

CM ratio	%
Break-even point in units
Break-even point in dollars	$

2.

The sales manager feels that an $6,700 increase in the monthlyadvertising budget, combined with an intensified effort by thesales staff, will result in a $81,000 increase in monthly sales. Ifthe sales manager is right, what will the revised net operatingincome or loss? (Use the incremental approach in preparing youranswer.)

(Click to select)Net operating lossNet operating incomeis

$

3.	Refer to the original data. The president is convinced that a 10%reduction in the selling price, combined with an increase of$37,000 in the monthly advertising budget, will double unit sales.What will the new contribution format income statement look like ifthese changes are adopted?

Contribution Income Statement
(Click to select)Net operating income (loss)SalesFixedexpensesContribution marginVariable expenses	$
(Click to select)Contribution marginSalesVariableexpensesNet operating income (loss)Fixed expenses
(Click to select)Net operating income (loss)VariableexpensesContribution marginSalesFixed expenses
(Click to select)Variable expensesContributionmarginNet operating income (loss)Fixed expensesSales
(Click to select)SalesVariable expensesNet operatingincome (loss)Fixed expensesContribution margin	$

4.	Refer to the original data. The company