Due to erratic sales of its sole product a high-capacity battery for laptop computers Naya Ltd has been experiencing difficulty for some time. The companys contribution income statement for the most recent month is given below:

Sales (19,500 units * $30 per unit) $585,000

Variable expenses 409,500

Contribution 175,500

Fixed expenses 180,000

Net operating loss $ (4,500)

Required:

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

b. The president 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 president is right, what will be the effect on the companys net operating income or loss? (Use the incremental approach in preparing your answer.)

c. 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 units sales to double. What will the new contribution format income statement look like if these changes are adopted?

d. The Marketing Department thinks that a fancy new package for the laptop computers battery would help sales. The new package would increase packaging costs by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $9,750?

e. By automating certain operations, the company would reduce variable costs by $3 per unit. However, fixed costs would increase by $72,000 each month.

i. Compute the new CM ratio and the new break-even point in units and dollars.

ii. 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.

iii. Would you recommend that the company automate its operations? Explain.

Due to erratic sales of its sole product a high-capacity battery for laptop computers Naya Ltd has been experiencing difficulty for some time. The companys contribution income statement for the most recent month is given below:

Sales (19,500 units * $30 per unit) $585,000

Variable expenses 409,500

Contribution 175,500

Fixed expenses 180,000

Net operating loss $ (4,500)

Required:

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

b. The president 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 president is right, what will be the effect on the companys net operating income or loss? (Use the incremental approach in preparing your answer.)

c. 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 units sales to double. What will the new contribution format income statement look like if these changes are adopted?

d. The Marketing Department thinks that a fancy new package for the laptop computers battery would help sales. The new package would increase packaging costs by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $9,750?

e. By automating certain operations, the company would reduce variable costs by $3 per unit. However, fixed costs would increase by $72,000 each month.

i. Compute the new CM ratio and the new break-even point in units and dollars.

ii. 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.

iii. Would you recommend that the company automate its operations? Explain.