Memofax, Inc. produces memory enhancement software for computers. 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 (12,500 units) Less: Variable expenses Contribution margin Less: Fixed expenses Net operating loss $250,000 150,000 100,000 106,000 $ (6,000) Required: 1. Compute the company's CM ratio and its break-even point in both units and dollars. (Do not round intermediate calculations. Round your "Break-even point in units" answer up to nearest whole number.) % Contribution margin ratio Break-even point in units Break-even point in dollars 2. The sales manager feels that an $10,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $80,000 increase in monthly sales. If the sales manager is right, what will be the effect on the company's monthly net operating income or loss? (Use the incremental approach in preparing your answer.) Increase in monthly net operating income Decrease in monthly net operating income 4. Refer to the original data. The company's advertising agency thinks that a new package would help sales. The new package being proposed would increase packaging costs by $0.5 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,700? (Do not round intermediate calculations. Round your answer up to nearest whole number.) Unit sales to attain target profit units 5. Refer to the original data. By automating, the company could slash its variable expenses in half. However, fixed costs would increase by $92,800 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 "Contribution margin ratio" answer to 2 decimal places. Round your "Break-even point" answers up to nearest whole number.) % Contribution margin 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. (Do not round intermediate calculations. Round "Per Unit" and "Percentage" to 2 decimal places.) Comparative Income Statements Not Automated Total Per Unit Percentage (%) Automated Total Per Unit Percentage (%) Sales d. What is the point of indifference between the two options? (Do not round intermediate calculations. Round your answer up to nearest whole number.) The point of indifference between the two options units
