Due to erratic sales of its sole product a high-capacity battery for mobile phones Little Rice has been experiencing difficulty for some time. The companys contribution format income statement for the most recent month is given below:

Sales (19,500 units $30 per unit) $585,000Variable costs(409,500) Contribution margin175,500Fixed costs(180,000)Operating loss(4,500)

Required:

Compute the companys CM ratio and its break-even point in both units and dollars. (5 marks)

The CEO believes that a $16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $80,000 increase in monthly sales. If the CEO is right, evaluate the effect on the companys monthly net operating income.

(4 marks)

Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $60,000 in the monthly advertising budget, will cause unit sales to double. Prepare an income statement under contribution format.

(4 marks)

Refer to the original data. By automating certain operations, the company could reduce variable costs by $3 per unit. However, fixed costs would increase by $72,000 each month. Assume that the company expects to sell 26,000 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. Make recommend based on the result.

(12 marks) [Total: 25 marks]

Due to erratic sales of its sole product - a high-capacity battery for mobile phones - Little Rice has been experiencing difficulty for some time. The company's contribution format income statement for the most recent month is given below: Required: a. Compute the company's \\( \\mathrm{CM} \\) ratio and its break-even point in both units and dollars. (5 marks) b. The CEO believes that a \\( \\$ 16,000 \\) increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an \\( \\$ 80,000 \\) increase in monthly sales. If the CEO is right, evaluate the effect on the company's monthly net operating income. (4 marks) c. Refer to the original data. The sales manager is convinced that a \10 reduction in the selling price, combined with an increase of \\( \\$ 60,000 \\) in the monthly advertising budget, will cause unit sales to double. Prepare an income statement under contribution format. (4 marks) d. Refer to the original data. By automating certain operations, the company could reduce variable costs by \\( \\$ 3 \\) per unit. However, fixed costs would increase by \\( \\$ 72,000 \\) each month. Assume that the company expects to sell 26,000 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. Make recommend based on the result. (12 marks)