Klyne Corporation manufactures pharmaceutical products that are sold through a network of sales agents. The agents are paid a commission of 21% of sales. The income statement for the year ending December 31, 2020, is as follows:

KLYNE CORPORATION Income Statement For the Year Ending December 31, 2020
Sales			$	27,500,000
Cost of goods sold
Variable	$	13,200,000
Fixed		2,873,000		16,073,000
Gross margin				11,427,000
Selling and marketing expenses
Commissions		5,775,000
Fixed costs		3,345,000		9,120,000
Operating income			$	2,307,000

Klyne is considering hiring its own sales staff to replace the network of agents. Klyne will pay its salespeople a commission of 15% and incur fixed costs of $2,083,000.

Required:

1. Calculate Klyne Corporations break-even point in sales dollars for the year 2020. (Round your answer to 2 decimal places.)

2. Calculate Klyne Corporations break-even point in sales dollars for the year 2020 if the company had hired its own sales force to replace the network of agents. (Round your answer to 2 decimal places.)

3. Calculate the degree of operating leverage at sales of $27,500,000, considering (a) Klyne uses sales agents and (b) Klyne employs its own staff. Describe the advantages and disadvantages of each alternative. (Round your answers to 2 decimal places.)

4. If Klyne increases the commission paid to its sales staff to 20%, keeping all other costs the same, how much revenue (in dollars) would Klyne have to generate to earn the same operating income it did in 2020? (Round your answer to 2 decimal places.)

Q2.

Memofax, Inc. produces memory enhancement software for computers. Sales have been very erratic, with some months showing a profit and some months showing a loss. The companys contribution format income statement for the most recent month is given below:

Sales (23,000 units)	$	920,000
Less: Variable expenses		690,000
Contribution margin		230,000
Less: Fixed expenses		237,000
Net operating loss	$	(7,000)

Required:

1. Compute the companys CM ratio and its break-even point in both units and dollars. (Do not round intermediate calculations. Round your "Break-even point in units" answer up to nearest whole number.)

2. The sales manager feels that an $27,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $165,000 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 8% reduction in the selling price, combined with an increase of $75,000 in the monthly advertising budget, will double unit sales. Should the company make these changes?

multiple choice

• Yes

• No

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 $0.5 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $6,400? (Do not round intermediate calculations. Round your answer up to 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 $90,500 per month.

a. Compute the new CM ratio and the new break-even point in both units and dollars. (Do not round intermediate calculations. Round your "Contribution margin ratio" answer to 2 decimal places. Round your "Break-even point" answers up to nearest whole number.)

b. Assume that the company expects to sell 27,000 units next month. Prepare two contribution format income statements: one assuming that operations are not automated, and one assuming that they are. (Do not round intermediate calculations. Round "Per Unit" and "Percentage" to 2 decimal places.)

c. This part of the question is not part of your Connect assignment.

d. What is the point of indifference between the two options? (Do not round intermediate calculations. Round your answer up to nearest whole number.)