Question

LOOKING FOR 5A AND 5B 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 (22,500 units at $30 per unit)	$	675,000
Less: Variable expenses		472,500
Contribution margin		202,500
Less: Fixed expenses		211,500
Net operating loss	$	(9,000)

Required:

  

5.	Refer to the original data. By automating, the company could slash its variable expenses in half. However, fixed costs would increase by $81,000 per month.

a.	Compute the new CM ratio and the new break-even point in both units and dollars. (Do not round intermediate calculations. Round "Contribution Margin Ratio" to 2 decimal places.)

            

b.	Assume that the company expects to sell 27,000 units next month. Prepare two contribution format income statements: one assuming that operations are not automated, and one assuming that they are. (Do not round intermediate calculations. Round "Per Unit" and "Percentage" to 2 decimal places.)

            

*****************THANK YOU**************

Answer 1

1 Requirement 1 2 Computation of revised Variable and Fixed cost 3 Particulars Amount 4 1.variable cost $ 21.00 5 (472500/22500) 6 2.LESS:Reduction in variable cost 50% $ 10.50 7 3. New variable cost $ 10.50 8 9 Particulars Amount 10 1.Fixed Cost $ 2,11,500 11 2. ADD:Increase in Fixed cost $ 81,000 12 3.New Fixed cost $ 2,92,500 13 14 Compute the New CM Ratio and Beak Even sales 15 Particulars Amount 16 Sale price 30.00 17 Less: Variale cost 10.50 18 Contribution Margin 19.50 19 Contribution Margin ratio 65% 20 (contributionmargin sales)*100 21 (19.5/30)*100 22 Break Even sales 23 (Fixed cost/Contribution Margin ratio S 4,50,000 24 (292500/65%)

А B C D E F G 26 Requirement 2 27 28 29 10 % 30 Particulars 31 Sales(27000*30) 32 Variable Expenses(27000*21) 33 Contribution margin 34 Fixed Expense 35 Net operating Income 36 Memofax, Inc Contribution Income statement Not Automated Total Per unit % $ 8.10,000 $ 30.00 100% $ 5,67,000 $ 21.00 70% S 2,43,000 S 19.50 30% $ 2.11,500 S 31,500 Automated Total Perunit $ 8,10,000 $ 30.00 $ 2,83,500 $ 10.50 S 5,26,500 S 19.50 $ 2.92.500 S 2,34,000 100% 35% 65%

1 Requirement 1 2 Computation of revised Variable and Fixed cost 3 Particulars Amount 4 1.variable cost =472500/22500 5 (472500/22500) 6 2.LESS:Reduction in variable cost 50% 10.5 7 3.New variable cost =+B4-B6 8 9 Particulars Amount 10 1.Fixed Cost 211500 11 2.ADD Increase in Fixed cost 81000 12 3.New Fixed cost =SUM(B10:B11) 13 14 Compute the New CM Ratio and Beak Even sales 15 Particulars Amount 16 Sale price 17 Less: Variale cost 10.5 18 Contribution Margin =+B16-B17 19 Contribution Margin ratio 0.65 20 (contributionmargin sales)*100 21 (19.5/30)*100 22 Break Even sales 23 (Fixed cost/Contribution Margin ratio) =292500/65% 24 (292500/65%)

в 26 Requirement 2 27 28 Automated Perunit 29 30 Particulars 31 Sales(27000*30) 32 Variable Expenses(27000*21) 33 Contribution margin 34 Fixed Expense 35 Net operating Income 30 Memofax, Inc Contribution Income statement Not Automated Per unit % Total =+B31/B31 =27000*30 21 =+B32/B31 =27000*10.5 =+C31-F32 =+B33/B31 =+E31-E32 292500 =+E33-E34 Total =27000*30 =27000*21 =+B31-B32 211500 =+B33-B34 30 10.5 =+F31-F32 % =+E31/E31 =+E32 E31 =+E33/E31