Group Presentation
ACC 208
Group 8
PROBLEM 5-20A
Requirement 1
Compute the company’s CM ratio and its break-even point in both units and dollars.
CM Ratio= CM / Sales
($270,000 - $189,000) / $270,000
CM Ratio= .30 = 30%
Break-even point in units= Fixed Expenses / UCM
90,000 / [(270,000 / 13,500) - (189,000 / 13,500)]= 90,000/6= 15,000 units
Break-even point sold in total sales dollars= Fixed Expenses/ CM Ratio
90,000 / 30% = $300,000
Requirement 2
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? (Use the incremental approach in preparing your answer.)
Requirement 2 (continued)
Incremental method
Variable expense ($14 per unit)
Contribution Margin
$340,000 Sales increased
238,000 VE increased
102,000 CM increased
Fixed Expenses
98,000
Net Operating Income
$4,000
Sales (17000 units x 20)
$70,000/20 = 3500 units
$189,000/13500 = $14 per unit
$90,000 + 8,000= $98,000
$70,000
49,000
21,000
less FE increased
8,000
NOI increased
$13,000
Requirement 3
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 double unit sales. What will the new contribution format income statement look like if these changes are adopted?
Requirement 3 (cont.)
Income Statement
Sales in Units (increase by 50%)
Selling Price (decrease by 10%)
Unit Contribution Margin
Sales (20,250 units X $18/unit)
Less: Variable Expenses
Contribution Margin
Less: Fixed Expenses ($90000 + $35000)
Net Operating Loss
20,250
$ 18.00
$ 4.00
$364,500
$283,500
$ 81,000
$125,000
$ (44,000)
Requirement 4
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
Group 8
PROBLEM 5-20A
Requirement 1
Compute the company’s CM ratio and its break-even point in both units and dollars.
CM Ratio= CM / Sales
($270,000 - $189,000) / $270,000
CM Ratio= .30 = 30%
Break-even point in units= Fixed Expenses / UCM
90,000 / [(270,000 / 13,500) - (189,000 / 13,500)]= 90,000/6= 15,000 units
Break-even point sold in total sales dollars= Fixed Expenses/ CM Ratio
90,000 / 30% = $300,000
Requirement 2
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? (Use the incremental approach in preparing your answer.)
Requirement 2 (continued)
Incremental method
Variable expense ($14 per unit)
Contribution Margin
$340,000 Sales increased
238,000 VE increased
102,000 CM increased
Fixed Expenses
98,000
Net Operating Income
$4,000
Sales (17000 units x 20)
$70,000/20 = 3500 units
$189,000/13500 = $14 per unit
$90,000 + 8,000= $98,000
$70,000
49,000
21,000
less FE increased
8,000
NOI increased
$13,000
Requirement 3
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 double unit sales. What will the new contribution format income statement look like if these changes are adopted?
Requirement 3 (cont.)
Income Statement
Sales in Units (increase by 50%)
Selling Price (decrease by 10%)
Unit Contribution Margin
Sales (20,250 units X $18/unit)
Less: Variable Expenses
Contribution Margin
Less: Fixed Expenses ($90000 + $35000)
Net Operating Loss
20,250
$ 18.00
$ 4.00
$364,500
$283,500
$ 81,000
$125,000
$ (44,000)
Requirement 4
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