Question

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Memofax, Inc. produces memory enhancement software for computers. 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 (12,000 units at $20 per unit) Less: Variable expenses $240,000 144,000 Contribution margin Less: Fixed expenses 96,000 101,000 Net operating loss $ (5,000) Required: 1. Compute the company's CM ratio and its break-even point in both units and dollars. Answer is complete and correct. L 40 % Contribution margin ratio Break-even point in units Break-even point in dollars 12,625 $ 252,500

Answer 1

Given

   Sale price per unit – 20 ,      total sales = 240000 ,    units sold = 12000

Variable cost = 144000 ,         variable cost per unit = 144000/12000 = 12 per unit

Fixed cost = 101000

Problem -3

sale price reduced by 10%

   so new price = 20-10% = 18

at 18 price per unit no of units sold is double of current level = 12000*2 = 24000

fixed cost = 101000+45000 = 146000

	Particulars	units	price per unit	Total
	sales	24000	18	432000
less ;	variable cost	24000	12	288000
	contribution			144000
less ;	Fixed cost			146000
	Net operating income			-2000

Problem -5

Variable expenses reduced by half

                So new variable expense per unit = 12*50% = 6

    New fixed cost = 101000+95000 = 196000

Contribution per unit = selling price – variable cost = 20 – 6 = 14

Contribution margin ratio = ( contribution / sale price )*100

                                         = (14/20)*100

                                         = 70 %

Break even point in units =   fixed cost / contribution per unit

                                    =   196000/14 = 14000

Break even point in dollars = fixed cost / Contribution margin ratio

                                           = 196000 / 70%

                                              = 280000

Problem -5b

          Fixed cost = 196000 , variable cost per unit = 6

		Automated
	Particulars	units	price per unit	Total
	sales	20000	20	400000
less ;	variable cost	20000	6	120000
	contribution			280000
less ;	Fixed cost			196000
	Net operating income			84000

Note ;

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