Q 1,2,3,4,5
Networks Company manufactures wireless routers. The company is contribution format income statement for the most recent year is given below Percentage of Total Per Unit Sales Sales (23.000 units) $2.500.000 $100 1009 Les variable expenses 1.500.000 160 24 Contribution in 1.000.000 S10 Le fixed expenses 202.000 Operating income $ 200,000 1. Compute the company's CM ratio and variable expense ratio 2. Compute the company's break-even point in both units and sales dollar 3. Assume that sales increase by 5600,000 next year. If cost behaviour patterns remain unchanged, by how much will the company's operating income increase? Use the CM ratio to determine your answer 4 Refer to the original data. Assume that next year, management wants the company to earn a minimum profit of $500,000 How many units will have to be sold to meet this target profit figure? 5 Refer to the original data Compute the company's margin of tafety in both dollar and percentage form 6. Compute the company's degree of operating leverage at the current level of sales b. Assume that, through a more intense effort by the tales staff, the company's tales increase by 12% next year. By what percentage would you eart Read the operating income to me? Use the operating leverage concept to obtain your answer you do not understand e Verify your answer to (b) by preparing a new income statement showing a 12% increase in sales the highlighted topic 7 to an effort to increase sales and profits, management is considering using a higher quality microprocessor in the router. The higher quality microprocessor would increase variable costs by 58 per unit, but matingement could eluminate one quality inspector, who is paid atalary of $10.000 per Bear The sales manapor estimates that the higher quality microprocesor would increase annual sales by at least 10% Assuming that changes are made as described above, prepare a projected income statement for next year Show date on a total pertand ac 7 In an effort to increase sales and profits, management is considering using a higher quality microprocessor in the router. The higher quality microprocessor would increase vaciable costs by S8 per unit, but management could eliminate one quality inspector, who is paid atalary of $40,00 Read this section if you do not understand year. The sales manager estimates that the higher quality microprocessor would increase annual sales by at least 10% the highlighted topic a. Assuming that changes are made as described above, prepare a projected income statement for next year. Show data on a total per unit, and percentage basic b. Compute the company's new beak even point in both units and dollars of sales Would you recommend that the changes be made? Why or why not? Solution to Review
