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 (14,000 units at $25 per unit) $ 350,000 Variable expenses 210,000 Contribution margin 140,000 Fixed expenses 150,000 Net operating loss $ (10,000)

Required:

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

2. The sales manager feels that a $6,500 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $86,500 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.)

3. Refer to the original data. The president is convinced that a 10% reduction in the selling price, combined with an increase of $35,000 in the monthly advertising budget, will double unit sales. What will the new contribution format income statement look like if these changes are adopted?

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 $.5 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,500? (Do not round intermediate calculations. Round your final answer to the nearest whole number.)

5. Refer to the original data. By automating, the company could slash its variable expenses in half. However, fixed costs would increase by $118,000 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.) b. Assume that the company expects to sell 20,500 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.)