Profit decisions are important to the Martins. These decisions not only arise from understanding the market, pricing policies and margins the managers need to understand the tools and elements they need to consider as they target either profit levels or their ability to manage the elements of the profit calculation. For example, if CompuTech is operating at a loss or below BREAK EVEN then understanding how they might be able to manage costs, or volumes to generate profits becomes very important. BREAKEVEN analysis can help the Martins and CompuTech decide on any of the following: how many units they need to sell, what price should they sell at (and compared to what the market will bear), what levels their fixed costs are at, what product or service should a company promote more or less. Assuming the following: (i) the sales price for each CompuTech product sold is $50; (ii) each product sold costs $25 in Raw Material components; and the business Fixed Cost is as determined in your Dec 31st, 2021 Income Statement.

Q5: If the Sheridan student could impact unit sales by 20% growth, would their hiring be justified? Explain.

Q6: With the following information for 2022 prepare a pro-forma Income Statement for the year ending December 31, 2022, and then, calculate CompuTechs (a) income before taxes, (b) contribution margin and (c) PV ratio.

RM Purchases: $205,000

Freight In: 4,000

Sales Salaries: 60,000

Commissions: 3,000

Travel: 3,000

Advertising: 5,000

Admin Salaries: 38,000

Revenue: 420,000

Depreciation: 40,000

Office leasing: 7,000

Finance Costs: 14,000

Income Taxes: 13,000

Q7: Assuming that the price per unit and the variable cost per unit have stayed the same as in calculations for 2021, what is the new BE in units for CompuTech in 2022? How does this compare to the BE in units for the previous year?

Q8: If the total market in the CompuTech market area had experienced a shrinking in units during the year (of 10%) should the Martins be concerned? Explain.

By 2023 the Martins are projecting considerable improvement in their business. Using the following accounts prepare the Income Statement for the period ending December 31, 2022.

RM Purchases: $406,000

Sales Salaries: 80,000

Commissions: 5,000

Travel: 5,000

Advertising: 10,000

Depreciation: 80,000

Admin Salaries: 60,000

Office Leasing: 10,000

Finance Costs: 30,000

Income Taxes: 42,000

DEC 31, 2021 INCOME STATEMENT:

12- 1- Income statement Balance sheet Revenue 350000 Assets cost of goods sold 177000 current assets purchases 175000 Trade receivables 35000 freight in 2000 cash 15000 173000 prepaid expense 5000 gross profit operating expenses Inventories 50000 sales salaries 80000 total of current assets 105000 advertising 3000 property plant and equipment net of accumulated depreciation 132000 2000 total of assets 237000 travel expense sales commission 2000 depreciation 38000 Liabilities and shareholders equity 1250001 accounts payable 17000 total of operating expenses operating profit financing cost 48000 5000 10000 30000 before tax profit 38000 52000 LTD retirement short term loans total of current liabilities long term liabilities total of liabilities shareholders equity tax expense 13000 60000 net profit 25000 112000 1000001 25000 share capital retained earning total of shareholders equity total of liabilities and shareholders equity 125000 3- 237000 Accounts Fixed or variable Sales Salaries: Fixed 4- cost of good Advertising Variable sold purchase of raw material Travel variable 1750001 Revenue variable 2000 freight in cost of good sold Fixed Financing Costs: Freight-in: 1770001 variable Income Taxes: Variable Sales Com'n Variable Depreciation: Fixed