Due to erratic sales of its sole product a disposable pocket camera Markline Company has been experiencing difficulty for some time. The Companys contribution format income statement for the most recent month is given below:

Sales (30,000 units x $20.00 per unit)	$600,000
Variable Expenses	360,000
Contribution Margin	240,000
Fixed Expenses	250,000
Net Operating Loss	$(10,000)

Compute the companys CM ratio and its break-even point in both units and dollars. Explain what CM ratio and break-even means.

The President believes that a $20,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $90,000 increase in monthly sales. If the president is right, what will be the effect on the companys monthly net operating income or loss? (Use the incremental approach to prepare your answer. Explain how this differs from other approaches.)

Refer to the Original data. The sales manager is convinced that a 14% reduction in the selling price, combined with an increase of $65,000 in the monthly advertising budget, will cause unit sales to increase by 100%. What will the new contribution format income statement look like if these changes are adopted? Explain your changes.

Refer to the original data. The Marketing Department thinks that a redesigned package for the camera would help sales. The new package would increase packaging cost by $0.75 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $9,200?

6. Explain margin of safety and operating leverage. How would these apply to question 1.