Given the following financial information:

Equity: $3,000,000

Unit selling price: $1,000/unit

Direct product costs: $700/unit

Fixed selling & marketing expenses: $70,000/month

Fixed administrative expenses: $40,000/month

Monthly unit sales: 1,000/month

Sales commissions: 10%

Income tax rate: 30%

1. Calculate the following ratios:

i) Gross Profit Margin

ii) Operating Profit Margin

iii) Net Profit Margin

iv) Return on Equity

2. The sales manager has suggested that an ongoing $5,000 increase in the monthly advertising budget would increase sales by 50 units/month? Should the additional advertising $ be spent?

3. Management is considering using higher quality components that would increase the direct product costs by $80/unit. The sales manager believes this change would result in a monthly sales unit increase of 15%. Should the higher quality components be used?