## Description

Depardieu Company.,

produces drone video helicopters for recreational surveillance. Sales have been

very erratic, with some months showing a profit and some months showing a loss.

The company’s contribution format income statement for the most recent month is

given below:

Sales

(12,900 units at $40 per unit) $516,000

Variable

expenses 309,600

Contribution margin 206,400

Fixed

expenses 230,400

Net operating loss $(24,000)

Required:

1. Compute

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

(Omit the “%” and “$” signs in your response.)

CM

ratio %

Break-even

point in units

Break-even

point in dollars $

2.The sales manager feels that an $6,000

increase in the monthly advertising budget, combined with an intensified effort

by the sales staff, will result in a $86,000 increase in monthly sales. If the

sales manager is right, what will the revised net operating income or loss?

(Use the incremental approach in preparing your answer.) (Omit the

“$” sign in your response.)

is

$

3. Refer to the original data. The president is

convinced that a 10% reduction in the selling price, combined with an increase

of $38,000 in the monthly advertising budget, will double unit sales. What will

the new contribution format income statement look like if these changes are

adopted? (Input all amounts as positive values except losses which should be

indicated by minus sign. Omit the “$” sign in your response.)

Contribution Income Statement $

$

4.Refer to the original data. The

companyâ€™s advertising agency thinks that a new package would help sales. The

new package being proposed would increase packaging costs by $0.40 per unit.

Assuming no other changes, how many units would have to be sold each month to

earn a profit of $5,000? (Round your intermediate calculations to 2 decimal

places and final answer to the nearest whole number.)

Sales

units

5. Refer to the

original data. By automating, the company could slash its variable expenses in

half. However, fixed costs would increase by $116,000 per month.

a.Compute the new CM ratio and the new

break-even point in both units and dollars. (Do not round intermediate

calculations. Round your final answers to the nearest whole number. Omit the

“%” and “$” signs in your response.)

CM

ratio %

Break-even

point in units

Break-even

point in dollars $

b. Assume that the company expects to sell 20,600

units next month. Prepare two contribution format income statements, one

assuming that operations are not automated and one assuming that they are.

(Omit the “$” and “%” signs in your response.)

Not

Automated

Automated

Total

Per Unit % Total Per Unit %

$ $ $

$

$ $

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