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Mouse House sells quality mouse cages for $25 per unit. The company's contribution format income statement for the most recent month is given below: Sales
Mouse House sells quality mouse cages for $25 per unit. The company's contribution format income statement for the most recent month is given below:
Sales (20,000 units) | $500,000 |
Variable expenses | 300,000 |
Contribution margin | 200,000 |
Fixed expenses | 195,000 |
Net operating loss | $5,000 |
Required:
Answer each question independently based on the original data:
- Calculate the company's break-even point in dollar sales. (1 mark)
- Calculate the company's margin of safety in dollars. (1 mark)
- The president believes that a $30,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $90,000 per month. If the president is right, what will be the increase (decrease) in the company's monthly net operating income? (1 mark)
- The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $75,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)? (1 mark)
- Using the degree of operating leverage, estimate the percent impact on net operating income of a 5% increase in unit sales. (1 mark)
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