CVP Company has been experiencing difficulty for some time (see following table). The companys income statement for the most recent month is given below:

Sales (19,500 units* RON 30)	RON 585,000
Less variable expenses	409,500
Contribution margin	175,500
Less fixed expenses	180,000
Net loss	RON (4,500)

Required:

1. Compute the companys C/M ratio and its break-even point in both units and RON (2 marks).

2. The president is certain that a RON 16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an RON 80,000 increase in monthly sales. If the president is right, what will be the effect on the companys net income or loss? Show computations used to make the decision. (4 marks)

3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of RON 60,000 in the monthly advertising budget, will cause unit sales to double. What will the new income statement look like if these changes were adopted? (4 marks)

4. Refer to the original data. The presidents wife thinks that a fancy new package for CVP Companys product would help sales. The new package would increase packaging costs by 0.75 RON per unit. Assuming no other changes in cost behaviour, how many units would have to be sold each month to earn a profit of RON 9,750? (4 marks)

5. Refer to the original data. By automating certain operations, the company could reduce variable costs by RON 3 per unit. However, fixed costs would increase by RON 72,000 each month.

a. Compute the new C/M ratio and the new break-even point in both units and dollars (2 marks)

b. Assume that the company expects to sell 26,000 units next month. Prepare two income statements, one assuming that operations are not automated and one assuming that they are (2 marks)

c. Would you recommend that the company automates its operations? Explain. Redo the two income statements if the company expects to sell 24,000 units (2 marks)

6. reflect on the advantages and challenges that the marginal costing (as opposed or complement to full absorption costing) is posing entities that are considering implementing it.