Req 1 : | |
Contribution margin per unit = Contribution margin / Units sold = 153600 / 12800 | 12 |
Contribution margin ratio = Contribution margin / Sales = 153600 / 384000 | 40% |
Break-even point in units = Fixed expenses / Contribution margin per unit = 171600 / 12 | 14300 |
Break-even point in dollars = Fixed expenses / Contribution margin ratio = 171600 / 40% | 429000 |
Req 2 : | |
Increase in Contribution margin ( Increase in sales * Contribution margin ratio = 81000 * 40% ) | 32400 |
(-) Increase in advertising budget | 6900 |
Increase (decrease) in net operating income | 25500 |
Increase in monthly net operating income | 25500 |
Req 3 : | |
Revised selling price = Current selling price * ( 1 - % reduction ) = 30 * ( 1 - 10% ) | 27 |
Current unit variable cost = Variable expenses / Units sold = 230400 / 12800 | 18 |
Revised fixed costs = Current fixed costs + Increase in advertising expense = 171600 + 30000 | 201600 |
Revised sales units = Current sales units * 2 = 12800 * 2 | 25600 |
Sales ( 25600 * 27 ) | 691200 |
(-) Variable expenses ( 25600 * 18 ) | 460800 |
Contribution margin | 230400 |
(-) Fixed expenses | 201600 |
Net operating income (loss) | 28800 |
Req 4 : | |
Revised unit variable cost = Current unit variable cost + 0.70 = 18 + 0.70 | 18.70 |
Units sales to attain target profit = ( Target profit + Fixed expenses ) / ( Selling price - Unit variable cost ) = ( 4200 + 171600 ) / ( 30 - 18.70 ) | 15558 |
Req 5A : | |
Current unit variable cost = Variable expenses / Units sold = 230400 / 12800 | 18 |
Revised unit variable cost = 18 - 3 | 15 |
Revised fixed expenses = 171600 + 56000 | 227600 |
Contribution margin per unit = Selling price - Unit variable cost = 30 - 15 | 15 |
CM ratio = Contribution margin per unit / Selling price = 15 / 30 | 50% |
Break-even point in unit sales = Fixed costs / Contribution margin per unit = 227600 / 15 | 15173 |
Break even point in dollar sales = Fixed costs / CM ratio = 227600 / 50% | 455200 |
Req 5B : | ||||||
Not automated | Automated | |||||
Total | Per unit | % | Total | Per unit | % | |
Sales | 615000 | 30 | 100% | 615000 | 30 | 100% |
Variable expenses | 369000 | 18 | 60% | 307500 | 15 | 50% |
Contribution margin | 246000 | 12 | 40% | 307500 | 15 | 50% |
Fixed expenses | 171600 | 227600 | ||||
Net operating income | 74400 | 79900 |
Req 5C : |
Answer : Yes |
Explanation : If the company sells 20500 units, then the company will earn more net operating income if it automates its operations. |
Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been...
Due to erratic sales of its sole product-a high-capacity battery for laptop computers—PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (13,200 units x $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 396,000 198,000 198,000 220,500 $ (22,500) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes...
Due to erratic sales of its sole product-a high-capacity battery for laptop computers–PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (13,200 units * $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 396,000 237,600 158, 400 176,400 $ (18,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president...
Due to erratic sales of its sole product-a high-capacity battery for laptop computers–PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (13,200 units * $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 396,000 237,600 158, 400 176,400 $ (18,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president...
Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing financial difficulty for some time. The company’s contribution format income statement for the most recent month is given below: Sales (12,900 units × $20 per unit) $ 258,000 Variable expenses 129,000 Contribution margin 129,000 Fixed expenses 144,000 Net operating loss $ (15,000 ) Required: 1. Compute the company’s CM ratio and its break-even point in unit sales and dollar sales. 2. The...
Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (12,700 units X $20 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 254,000 152,400 101,600 113,600 $ (12,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes...
Due to erratic sales of its sole product-a high-capacity battery for laptop computers,PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (13,100 units * $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 393,000 235, 800 157,200 175, 200 $ (18,000) Required: Reg 1 Reg 2 Req3 Req 4 Req 5A Req 5B Req 5C Compute the company's CM ratio...
Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (13,300 units * $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 399,000 239,400 159,600 177,600 $ (18,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes...
Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (12,600 units * $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 378,000 226,800 151,200 169,200 $ (18,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes...
Help solving Due to erratic sales of its sole product-a high-capacity battery for laptop computers—PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: $252,000 Sales (12,600 units X $20 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss 151,200 100,800 112,800 $(12,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes...
Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (12,900 units X $20 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 258,000 154,800 103, 200 115,200 $ (12,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president...