Memofax, Inc., produces memory enhancement kits for fax machines. Sales have bee
ID: 2344914 • Letter: M
Question
Memofax, Inc., produces memory enhancement kits for fax machines. 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 (13,500 units at $40 per unit) $ 540,000
Variable expenses 324,000
Contribution margin 216,000
Fixed expenses 240,000
Net operating loss $ (24,000)
Required:
1.
Compute the company's CM ratio and its break-even point in both units and dollars. (Omit the "%" and "$" signs in your response.)
CM ratio ???? %
Break-even point in units ????
Break-even point in dollars $ ????
2.
The sales manager feels that an $6,100 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $89,000 increase in monthly sales. If the sales manager is right, what will the revised net operating income or loss? (Use the incremental approach in preparing your answer.) (Omit the "$" sign in your response.)
Loss or Income? ________________?????
3.
Refer to the original data. The president is convinced that a 10% reduction in the selling price, combined with an increase of $35,000 in the monthly advertising budget, will double unit sales. What will the new contribution format income statement look like if these changes are adopted? (Input all amounts as positive values except losses which should be indicated by minus sign. Omit the "$" sign in your response.)
4.
Refer to the original data. The company
Explanation / Answer
Memofax, Inc., produces memory enhancement kits for fax machines. 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 (13,500 units at $40 per unit) $ 540,000
Variable expenses 324,000
Contribution margin 216,000
Fixed expenses 240,000
Net operating loss $ (24,000)
Required:
1.
Compute the company's CM ratio and its break-even point in both units and dollars. (Omit the "%" and "$" signs in your response.)
CM ratio= 40 %
Break-even point in units= 7560
Break-even point in dollars =$ 8.4