Faxmatic, Inc , produces memory enhancement kits for fax machines Sales have been very erratic, with some months showing a profit and some months showing a loss The company's contribution format income statement for the most recent month is given below Sales (23,000 units at $115 per unit)$2,645,000 Variable expenses 1,587,000 Contribution margin 1,058,000 Fixed expenses 1,081,000 Net operating loss$(23,000) Required 1 Compute the company's CM ratio and its break even point in both units and dollars CM ratio Break even point in units Break even point in dollars 2 The sales manager feels that a $8,300 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $95,500 increase in monthly sales If the sales manager is right, what will be the effect on the companys monthly net operating income or loss (Use the incremental approach in preparing your answer ) Increase in net operating income 3 Refer to the original data The president is convinced that a 10 reduction in the selling price, combined with an increase of $125,000 in the monthly advertising budget, will double unit sales What will the new contribution format income statement look like if these changes are adopted FAXMATIC, INC Contribution Income Statement Sales Variable expenses Contribution margin Fixed expenses Net operating income 4 Refer to the original data The companys advertising agency thinks that a new package would help sales The new package being proposed would increase packaging costs by $2 3 per unit Assuming no other changes, how many units would have to be sold each month to earn a profit of $6,300 (Do not round intermediate calculations Round your final answer to the nearest whole number ) Sales units 5 Refer to the original data By automating, the company could slash its variable expenses in half However, fixed costs would increase by $136,000 per month a Compute the new CM ratio and the new break even point in both units and dollars (Do not round your intermediate calculations Round up your final break even answers to the nearest whole number ) CM ratio Break even point in units Break even point in dollars b Assume that the company expects to sell 24,100 units next month Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are (Round Per unit answers to 1 decimal place ) Not Automated Automated Total Per Unit Total Per Unit Sales Variable expenses Contribution margin Fixed expenses Net operating income

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Faxmatic, Inc., produces memory enhancement kits for fax machines. Sales have been very erratic, with some months showing a profit and some months showing a

Faxmatic, Inc., produces memory enhancement kits for fax machines. Sales have been very erratic, with some months showing a profit and some months showing a loss. The company's contribution format income statement for the most recent month is given below:

Sales (23,000 units at $115 per unit)$2,645,000

Variable expenses 1,587,000

Contribution margin 1,058,000

Fixed expenses 1,081,000

Net operating loss$(23,000)

*Required:*
1.	Compute the company's CM ratio and its break-even point in both units and dollars.


CM ratio		%
Break-even point in units
Break-even point in dollars

The sales manager feels that a $8,300 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $95,500 increase in monthly sales. If the sales manager is right, what will be the effect on the companys monthly net operating income or loss? (Use the incremental approach in preparing your answer.)

Increase in net operating income

Refer to the original data. The president is convinced that a 10% reduction in the selling price, combined with an increase of $125,000 in the monthly advertising budget, will double unit sales. What will the new contribution format income statement look like if these changes are adopted?

FAXMATIC, INC.
Contribution Income Statement
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income

Refer to the original data. The companys advertising agency thinks that a new package would help sales. The new package being proposed would increase packaging costs by $2.3 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $6,300? (Do not round intermediate calculations. Round your final answer to the nearest whole number.)

Sales units

5.	Refer to the original data. By automating, the company could slash its variable expenses in half. However, fixed costs would increase by $136,000 per month.

Compute the new CM ratio and the new break-even point in both units and dollars. (Do not round your intermediate calculations. Round up your final break even answers to the nearest whole number.)


CM ratio		%
Break-even point in units
Break-even point in dollars

b.	Assume that the company expects to sell 24,100 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Round "Per unit" answers to 1 decimal place.)