Sales (19,500 units x (30)

E585,000

Less variable expenses

409,500

Contribution margin

175,500

Less fixed expenses

180,000

Net loss

E(4,500)

Required

1 Compute the company’s CM ratio and its break-even point in both units and pounds.

2 The president believes that a $16,000 increase in the monthly advertising budget, combined with an

intensified effort by the sales staff, will result in an $80,000 increase in monthly sales. If the president is

right, what will be the effect on the company’s monthly profit or loss? (Use the incremental approach in

preparing your answer.)

3 Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price

combined with an increase of $60,000 in the monthly advertising budget, will cause unit sales to dou

ble. What will the new profit and loss account look like if these changes are adopted?

4

Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop

computer battery would help sales. The new package would increase packaging costs by 75 pence per

unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of

E9,750?

5 Refer to the original data. By automating certain operations, the company could reduce variable costs by

$3 per unit. However, fixed costs would increase by $72,000 each month.

(a) Compute the new CM ratio and the new break-even point in both units and pounds.

(b) Assume that the company expects to sell 26,000 units next month. Prepare two profit and Ids

accounts, one assuming that operations are not automated and one assuming that they are. (Shop

data on a per unit and percentage basis, as well as in total, for each alternative.)

(c) Would you recommend that the company automate its operations? Explain.Managerial Accounting