Question Details

(Solution Download) Hebrides Inc. produces memory enhancement kits for fax machines. Sales have been very erratic, with


 

 

 

 

 

 

 

Hebrides Inc. produces memory enhancement kits for fax machines.

 

Sales have been very erratic, with some months showing a profit and

 

some months showing a loss. The companyAc??cs contribution-format

 

income statement for the most recent month is given below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Sales (30,500 units

 

at $20 per unit)

$610,000
  Variable

 

expenses

427,000
  Contribution

 

margin

183,000
  Fixed expenses193,200
  Operating loss$(10,200)

 

 

 

 

 

 

 

 

Required:

 

 

 

 

 

 

 

 

1.

 

Compute the companyAc??cs CM ratio and its break-even point in both

 

units and dollars. (Omit the "%" & "$" signs in your

 

response.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  CM ratio%
  Break-even point in

 

units

 

      

  Break-even point in

 

dollars

 

$       

 

 

 

 

 

 

 

 

2.

 

The sales manager feels that an $12,000 increase in the monthly

 

advertising budget, combined with an intensified effort by the

 

sales staff, will result in a $112,000 increase in monthly sales.

 

If the sales manager is right, what will be the effect on the

 

companyAc??cs monthly operating income or loss? (Use the incremental

 

approach in preparing your answer.) (Omit the "$" sign in

 

your response.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Incremental

 

contribution margin

 

$   

  Less increased fixed

 

costs:

 

    Increased advertising cost

 

  

  (Click to

 

select)DecreaseIncrease in monthly operating income

 

$   

 

 

 

 

 

 

 

 

3.

 

Refer to the original data. The president is convinced that a

 

10% reduction in the selling price, combined with an increase of

 

$94,000 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? (Input all amounts as

 

positive values. Omit the "$" sign in your response.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  (Click to

 

select)Contribution marginVariable expensesFixed expensesSalesCost

 

of goods sold

 

$   

  (Click to

 

select)Contribution marginVariable expensesCost of goods soldFixed

 

expensesSales

 

  

  (Click to

 

select)Contribution marginFixed expensesCost of goods

 

soldSalesVariable expenses

 

  

  (Click to

 

select)SalesFixed expensesVariable expensesCost of goods

 

soldContribution margin

 

  

  (Click to

 

select)Operating incomeOperating loss

 

$   

 

  

 

 

 

 

 

 

 

 

4.Refer to the original data. The

 

companyAc??cs 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 profit of $3,900?

 

  

 

 

 

 

 

 

 

 

  Salesunits

 

 

 

 

 

 

 

 

5.

 

Refer to the original data. By automating certain operations,

 

the company could slash its variable expenses in half. However,

 

fixed costs would increase by $137,000 per month.

 

 

 

 

 

 

 

 

 

a.

 

Compute the new CM ratio and the new break-even point in both

 

units and dollars. (Round your answers to

 

1 decimal place. Omit the "%" & "$" signs in

 

your response.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  CM ratio%
  Break-even point in

 

units

 

      

  Break-even point in

 

dollars

 

$       

 

 

 

 

 

 

 

 

b.

 

Assume that the company expects to sell 37,000 units next month.

 

Prepare two contribution-format income statements, one assuming

 

that operations are not automated and one assuming that they

 

are.(Round your percentage answers to 1 decimal place and

 

other answers to the nearest dollar amount. Omit

 

the "%" & "$" signs in your

 

response.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not Automated

 

Automated

 

 

TotalPer Unit%TotalPer Unit%
  (Click to

 

select)Fixed expensesCost of goods soldVariable

 

expensesContribution marginSales

 

$   

 

$   

 

$   

 

$   

 

  

  (Click to

 

select)Fixed expensesContribution marginVariable expensesCost of

 

goods soldSales

 

  

 

  

 

  

 

  

 

  

  (Click to

 

select)Contribution marginVariable expensesSalesCost of goods

 

soldFixed expenses

 

  

 

$   

 

  

 

$   

 

  

  (Click to

 

select)Cost of goods soldFixed expensesVariable

 

expensesSalesContribution margin

 

  

 

  

  (Click to

 

select)Operating lossOperating income

 

$   

 

$   

 


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