Memofax, Inc. produces memory enhancement software for computers. Sales have bee
ID: 2543277 • Letter: M
Question
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 income statement for the most recent month is given below company's contribution format Sales (14,500 units at $24 per unit) Less: Variable expenses $348,000 261,000 Contribution margin Less: Fixed expenses 87,000 96,000 Net operating loss $ (9,000) Required 1. Compute the company's CM ratio and its break-even point in both units and dollars. 251% Contribution margin ratio Break-even point in units Break-even point in dollars 16,000 S 384,000 2. The sales manager feels that an $13,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $95,000 increase in monthly sales. the sales manager is right, what will be the effect on the company's monthly net operating income or loss? (Use the incremental approach in preparing your answer.) ncrease in monthly net operating income10,750Explanation / Answer
5) old contribution margin per unit = 87000/14500= 6 old variable cost per unit 261000/14500= 18 since variable cost is reduced to half that is $9 , contribution per unit will increase accordingly hence new contribution per unit will be $6+$9= $15 old fixed expense 96,000 Addincreased fixed expense 84,000 total fixed cost 180,000 Contribution margin ratio = 15/24 62.50% Break even point in units = 180,000/15 12000 units Break even point in dollars = 12000*24 288000 5b) comparative income statement Not Automated Automated total per unit % total per unit % Sales 480000 24 100% 480000 24 100% less:Variable expenses 360000 18 75% 180000 9 37.50% Contribution margin 120000 6 25% 300000 15 62.50% less:Fixed expenses 96,000 180,000 net operating income 24,000 120,000