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Carrington Alarntic Inc. produces motors for yachts. Sales have been very up and down, with some months showing a loss. The company's contribution-format income statement
Carrington Alarntic Inc. produces motors for yachts. Sales have been very up and down, with some months showing a loss. The company's contribution-format income statement for the most recent month is given below:
Sales (20,000 units at $15 per unit) $300,000
Variable expenses 200,000
Contribution margin (CM) 100,000
Fixed expenses 120,000
Net operating loss $ (20,000)
Required:
- Compute the company's break-even point in both units and dollars.
- The sales manager feels that a $30,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $150,000 increase in monthly sales. If the sales manager is right, what will be the effect on the company's monthly net operating income or loss?
- Refer to the original data. The president is convinced that a 20% reduction in the selling price, combined with an increase of $20,000 in the monthly advertising budget, will cause unit sales to double. What will the new contribution-format income statement look like if these changes are adopted?
- Refer to the original data. The company's advertising agency thinks that a new package would help sales. The new package being proposed would increase packaging costs by $1.00 per unit. Assuming no other changes, how many units would have to be sold each month to earn a pretax profit of $20,000?
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