MS 358 Cost Volume Profit In-Class Exercises Name: 9. Belli-Pitt, Inc, produces a single product. The results of the company's operations for a typical month are summarized in contribution format as follows: Use the following to answer questions 1-4: 6. This question is to be considered independently of all other questions relating to Lemelio Corporation. Refer to the original data when answering this question. The marketing manager believes that a $11,000 increase in the monthly advertising budget would result in a 100 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? Next year, Rad Shirt Company expects to sell 32,000 shirts. Rad is budgeting the following operating results for next year: Sales... .... .. . Variable expenses... . Contribution margin... . Ficed expenses............... Net operating income......... $540,000 360,000 180.000 120.000 60.000 Sales... Variable expenses...................... Contribution margin ................. Fixed expenses...... Net operating income............ 5.800.000 238.000 512,000 192.000 320.000 The company produced and gold 120,000 kilograms of product during the month. There were no beginning or ending inventories. 7. This question is to be considered independently of all other questions relating to Lemedia Corporation Refer to the original data when answering this question. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $20 per unit. In exchange, the sales staff would accept a decrease in their salaries of $113,000 per month (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 300 units. What should be the overall effect on the company's monthly net operating income of this change? Required: 1. What is Rad's, margin of safety for next year? 2. What is Rad's degree of operating leverage for next year? a. Given the present situation, compute 1. The break-even sales in kilograms. 2. The break-even sales in dollars. 3. The sales in kilograms that would be required to produce net operating income of $90,000 4. The margin of safety in dollars. 3. How many shirts would Rad have to sell next year in order to generate $480,000 of net operating income? 8.This question is to be considered independently of all other questions relating to Lemelio. Corporation. Refer to the original data when answering this question. The marketing manager would like to cut the selling price by $18 and increase the advertising budget by $37,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,600 units. What should be the overall effect on the company's monthly net operating income of this change? 4. Rad is considering increasing its advertising by S48,000 next year. By how much would sales have to increase in order for Rad to still generate a $320,000 met operating income? b. An important part of processing is performed by a machine that is currently being c. leased for $20,000 per month. Belli-Pitt has been offered an arrangement whereby it would pay $0.10 royalty per kilogram processed by the machine rather than the monthly lesse. 1. Should the company choose the lease or the royalty plan? 2. Under the royalty plan compute break-even point in kilograms. 3. Under the royalty plan compute break-even point in dollars. 4. Under the royalty plan determine the sales in kilograms that would be required to produce net operating income of $90,000. Data conceming Lemelin Corporation's single product appear below. Per Unit 5230 113 5115 Percent of Sales 100% Selling price........ Variable expenses........................ Contribution margin...................... 50% 5096 The company is currently selling 7,000 units per month. Fisted expenses are $581,000 per month Consider each of the following questions independently. 5. This question is to be considered independently of all other questions relating to Lemeli Corporation. Refer to the original data when answering this question. Management is considering using a new component that would increase the unit variable cost by $3. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 200 units. What should be the overall effect on the company's monthly net operating income of this change