Learning Objectives

• Understand the concept of Cost/Volume/Profit Analysis
• Understand and Apply Target Profit Analysis

Instructions

Data for the company is shown below:

	Per Unit	% of Sales
Selling Price	$75.00	100%
Variable Expenses	45.00	60%
Contribution Margin	$30.00	40%

Fixed expenses are $75,000 per month and the company is selling 3,000 units per month.

Required

Create and upload an Excel spreadsheet which shows the following (remember to show adequate work and use appropriate formulas):

1. The marketing manager believes that an $8,000 increase in the monthly advertising budget would increase monthly sales by $15,000. Should the advertising budget be increased?
2. Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $3 per unit. The marketing manager believes that the higher-quality product would increase sales by 15% per month. Should the higher-quality components be used?