Memofax, 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(12,600 units at $40 per unit) $504,000

Variable expenses 302,400

Contribution margin 201,600

Fixed expenses 225,600

Net operating loss (24,000)

1.

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

CM ratio__________%

Break even point in units ___________

Break even point in dollars $_____________

2.

The sales manager feels that an $7,500 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $73,000 increase in monthly sales. If the sales manager is right, what will be the effect on the company%u2019s monthly net operating income or loss? (Use the incremental approach in preparing your answer.) (Input the amount as a positive value.)

A. Decrease in net operating income

B. Decrease in net operating loss

C. Increase in net operating income

D. Increase in net operating income

$___________

3.

Refer to the original data. The president is convinced that a 10% reduction in the selling price, combined with an increase of $39,000 in the monthly advertising budget, will double unit sales. What will the new contribution format income statement look like if these changes are adopted? (Input all amounts as positive values except losses which should be indicated by minus sign. )

Contribution income Statement

______________ $________________

______________ ________________

______________ ________________

______________ ________________

______________ $________________

4.

Refer to the original data. The company%u2019s advertising agency thinks that a new package would help sales. The new package being proposed would increase packaging costs by $0.60 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,200? (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.)

Sales unit _____________

5.	Refer to the original data. By automating, the company could slash its variable expenses in half. However, fixed costs would increase by $120,000 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 final answers to the nearest whole number.)

CM ratio__________%

Break even point in units ___________

Break even point in dollars $_____________

b.	Assume that the company expects to sell 20,900 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Input all amounts as positive values.)

Not Automated

Automated

	Total	Per Unit	%	Total	Per Unit	%
(Click to select) Contribution margin Sales Net operating income (loss) Variable expenses Fixed expenses	$	$		$	$
(Click to select) Fixed expenses Variable expenses Net operating income (loss) Sales Contribution margin
(Click to select) Contribution margin Net operating income (loss) Fixed expenses Sales Variable expenses		$			$
(Click to select) Fixed expenses Sales Variable expenses Net operating income (loss) Contribution margin
(Click to select) Variable expenses Net operating income (loss) Fixed expenses Contribution margin Sales	$			$