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 (13,100 units at $20 per unit)	$	262,000
Variable expenses		157,200
Contribution margin		104,800
Fixed expenses		116,800
Net operating loss	$	(12,000)

Required:
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 $7,400 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $72,000 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.) (Input the amount as a positive value.)

(Click to select)Decrease in net operating lossDecrease in net operating incomeIncrease in net operating lossIncrease 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 $36,000 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)SalesContribution marginNet operating income (loss)Variable expensesFixed expenses	$
(Click to select)Variable expensesFixed expensesSalesNet operating income (loss)Contribution margin
(Click to select)Contribution marginFixed expensesSalesVariable expensesNet operating income (loss)
(Click to select)Contribution marginFixed expensesVariable expensesNet operating income (loss)Sales
(Click to select)Variable expensesNet operating income (loss)Contribution marginSalesFixed expenses	$

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 $0.70 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,000?(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 $124,000 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)Fixed expensesVariable expensesContribution marginSalesNet operating income (loss)	$	$		$	$
(Click to select)Contribution marginSalesNet operating income (loss)Variable expensesFixed expenses
(Click to select)Contribution marginFixed expensesSalesVariable expensesNet operating income (loss)		$			$
(Click to select)Variable expensesNet operating income (loss)Fixed expensesContribution marginSales
(Click to select)Contribution marginSalesFixed expensesVariable expensesNet operating income (loss)	$			$