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On January 1, 2019, John Smith launched a computer services company, Technology Business Solutions that is organized as a corporation and provides computer consulting services

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On January 1, 2019, John Smith launched a computer services company, Technology Business Solutions that is organized as a corporation and provides computer consulting services and computer system installations. Smith adopts the calendar year for reporting purposes. After the initial success of the company, John Smith continues to operate Technology Business Solutions and has expanded into computer systems manufacturing and sales. They are currently contracting with several large businesses to develop and construct their IT systems. 1. The company wants to see its income statement for the current month, August, (Comprehensive Problem 1) in the contribution format. The Income Statement for the previous month, July, is given below: Sales $156,000 Cost of goods sold 78,472 Gross Margin 77,528 Selling and administrative expenses: Selling expense 31,000 Utility Expense 5,000 Depreciation Expense 8,000 Executive Salaries Expense 21,000 65,000 Net operating income $ 12.528 The company completed and sold 3 systems in July. Required: a. State which expenses above are fixed, variable and mixed and, by use of the high-low method, separate each mixed expense into its variable and fixed components. STATE the COST FORMULA for each mixed expense. The company completed and sold 7 systems in August. Show all Calculations! b. Complete the company's contribution format income statement for AUGUST 2. Using the contribution format income statement from #1, August compute the following items: (round all dollars to whole dollars, refer to the original August information to compute a - 8) (Show all calculations!) a. Unit contribution margin. b. Contribution margin ratio. c. Break-even in dollar sales. d. Margin of safety percentage. Use Sensitivity Analysis to answer e and f(each scenario is independent of any other, refer to the original August information for each). e. The sales manager believes a 10% increase in variable unit selling expenses will increase sales volume. If the sales volume increases by 28.5%, what will be the change in net operating income? Is this a good idea, why or why not? f. The marketing manager believes that an increase in advertising and a better quality materials will increase sales volume by 40%. If this change increases the per unit variable production costs by 15%, and if fixed selling expenses increase by 12%, what will be the new break-even point in dollar sales? Change in Net Income? Is this a good idea, why or why not? 8. Calculate the degree of operating leverage (round two decimal places). What would net income be if sales increase by 20%? Verify your calculation using the contribution format income statement On January 1, 2019, John Smith launched a computer services company, Technology Business Solutions that is organized as a corporation and provides computer consulting services and computer system installations. Smith adopts the calendar year for reporting purposes. After the initial success of the company, John Smith continues to operate Technology Business Solutions and has expanded into computer systems manufacturing and sales. They are currently contracting with several large businesses to develop and construct their IT systems. 1. The company wants to see its income statement for the current month, August, (Comprehensive Problem 1) in the contribution format. The Income Statement for the previous month, July, is given below: Sales $156,000 Cost of goods sold 78,472 Gross Margin 77,528 Selling and administrative expenses: Selling expense 31,000 Utility Expense 5,000 Depreciation Expense 8,000 Executive Salaries Expense 21,000 65,000 Net operating income $ 12.528 The company completed and sold 3 systems in July. Required: a. State which expenses above are fixed, variable and mixed and, by use of the high-low method, separate each mixed expense into its variable and fixed components. STATE the COST FORMULA for each mixed expense. The company completed and sold 7 systems in August. Show all Calculations! b. Complete the company's contribution format income statement for AUGUST 2. Using the contribution format income statement from #1, August compute the following items: (round all dollars to whole dollars, refer to the original August information to compute a - 8) (Show all calculations!) a. Unit contribution margin. b. Contribution margin ratio. c. Break-even in dollar sales. d. Margin of safety percentage. Use Sensitivity Analysis to answer e and f(each scenario is independent of any other, refer to the original August information for each). e. The sales manager believes a 10% increase in variable unit selling expenses will increase sales volume. If the sales volume increases by 28.5%, what will be the change in net operating income? Is this a good idea, why or why not? f. The marketing manager believes that an increase in advertising and a better quality materials will increase sales volume by 40%. If this change increases the per unit variable production costs by 15%, and if fixed selling expenses increase by 12%, what will be the new break-even point in dollar sales? Change in Net Income? Is this a good idea, why or why not? 8. Calculate the degree of operating leverage (round two decimal places). What would net income be if sales increase by 20%? Verify your calculation using the contribution format income statement

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