Kunju, Inc., produces a single product. Sales have been very erratic, with some months showing a profit and some months showing a loss. The company's income statement for the most recent month is given below:

Sales (20,000 units)Br. 100,000

Variable expenses60,000

Contribution marginBr. 40,000

Fixed expenses50,000

Net lossBr. (10,000)

The following situations refer to the preceding data and are independent unless otherwise told to the contrary. Ignore income taxes.

Instructions:

a.Compute the company's break even point (BEP) in units and in total sales dollar.

b.If the variable expenses per unit increase as a percentage of the selling price, will it result in a higher or a lower break-even point? Why? Assume the fixed expenses remain unchanged.

c.If the sales managers receives a bonus of Br. 1.00 for each unit sold in excess of the BEP, how many units must be sold each month to earn a return of 25% on the monthly investment in fixed costs?

d.The president is convinced that a 5% reduction in the selling price, combined with an increase of Br. 15,000 in the monthly advertising budget, will cause unit sales to double. What will be the new income if the changes are adopted?

e.Refer to the original data. The president feels that it would be unwise to change the selling price. Instead, he wants to increase the sales commission by Br. 0.50 per unit. He thinks that this action, combined with some increase in advertising, would cause annual sale to double. By how much could advertising be increased to earn a monthly Br. 6,000 net income?

f.Refer to the original data. By automating certain operations, the company could reduce its variable expenses in half. However, fixed costs would increase by Br. 20,000 per month.

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

ii.Assume that the company expects to sell 25,000 units next month, would you recommend that the company automate its operation? Explain

Case B. The Dashen Company has two product lines, A and B, with a contribution margin of Br. 50 and Br. 20, respectively. The president foresees sales of 20,000 units in the coming year, consisting of 4,000 units of A and 16,000 units of B. The company's annual fixed costs are estimated to be Br. 260,000. The variable cost as a percentage of selling prices are expected to be 50% for A and 75% for B.

Instructions:

a.Assuming the above sales mix, determine the company's break even point in units and in asales dollars. How many units of each product should be sold to break-even

b.If the sales mix is maintained, what is the total contribution margin when the expected 20,000 units are sold? What is the company's operating income?

c.What volume of sales in dollars for each product must DASHEN Company make to earn an after tax net income of Br. 273,000 in the coming year? Assume the company is subject a 30% income tax rate.