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 companys contribution format income statement for the most recent month is given below:

Sales (17,000 units) $ 408,000 Less: Variable expenses 306,000 Contribution margin 102,000 Less: Fixed expenses 108,000 Net operating loss $ (6,000)

Required:

1. Compute the companys 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.)

2. The sales manager feels that an $18,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $120,000 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.)

3. Refer to the original data. The president is convinced that a 7% reduction in the selling price, combined with an increase of $37,000 in the monthly advertising budget, will double unit sales. Should the company make these changes?

multiple choice Yes No

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 $0.5 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $5,500? (Do not round intermediate calculations. Round your answer up to nearest whole number.)

5. Refer to the original data. By automating, the company could slash its variable expenses in half. However, fixed costs would increase by $45,000 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 "Contribution margin ratio" answer to 2 decimal places. Round your "Break-even point" answers up to nearest whole number.)