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 (12,700 units at $40 per unit)	$	508,000
Variable expenses		254,000
Contribution margin		254,000
Fixed expenses		284,000
Net operating loss	$	(30,000)

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 $7,100 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $69,000 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.)

(Click to select) Decrease in net operating income Increase in net operating loss Increase in net operating income Decrease in net operating loss

$

3.

Refer to the original data. The president is convinced that a 10% reduction in the selling price, combined with an increase of $30,000 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
(Click to select) Variable expenses Fixed expenses Sales Net operating income (loss) Contribution margin	$
(Click to select) Fixed expenses Variable expenses Sales Contribution margin Net operating income (loss)
(Click to select) Contribution margin Fixed expenses Sales Variable expenses Net operating income (loss)
(Click to select) Variable expenses Contribution margin Net operating income (loss) Sales Fixed expenses
(Click to select) Net operating income (loss) Fixed expenses Sales Contribution margin Variable expenses	$

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 $0.70 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,600? (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.)

Sales units

5.	Refer to the original data. By automating, the company could slash its variable expenses in half. However, fixed costs would increase by $125,000 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 20,000 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 Fixed expenses Variable expenses Net operating income (loss)	$	$		$	$
(Click to select) Sales Fixed expenses Variable expenses Contribution margin Net operating income (loss)
(Click to select) Contribution margin Variable expenses Net operating income (loss) Sales Fixed expenses		$			$
(Click to select) Net operating income (loss) Sales Variable expenses Contribution margin Fixed expenses
(Click to select) Sales Variable expenses Fixed expenses Net operating income (loss) Contribution margin	$			$