Recording, Inc. produces memory enhancement kits for DVR machines. Sales have been very erratic, with some months showing a loss. The company’s contribution format income statement for the most recent month is given below:
Sales (13,500 units at $20 per unit) $270,000
Variable expenses 189,000
Contribution margin (CM) 81,000
Fixed expenses 90,000
Net operating loss $ (9,000)
Required:
-Compute the company’s break-even point in both units and dollars.
-The sales manager feels that an $8,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $70,000 increase in monthly sales. If the sales manager is right, what will be the effect on the company’s monthly net operating income or loss?
-Refer to the original data. The president is convinced that a 10% reduction in the selling price, combined with an increase of $35,000 in the monthly advertising budget, will cause unit sales to double. What will the new contribution format income statement look like if these changes are adopted?
-Refer to the original data. The company’s advertising agency thinks that a new package would help sales. The new package being proposed would increase packaging costs by $0.60 per unit. Assuming no other changes, how many units would have to be sold each month to earn a pretax profit of $4,500?
