Answer:
Explanation:
Sales Price p.u = 20
Variable Cost = (8)
Contribution per unit = 12
C.M Ratio = 12/20 = 60%
2)
break even = fix cost/ Cm per unit
Break Even = 180,000/.6
Break Even = 300,000
3) Fix will not change due to increase in units sold
75000/20= 3750 increase in units
CM in $= 3750*12 = 45000
Net operating already given in the question =60000
Increase in operating inc. due to increase in sales= 45000
Total Net operating income = 105000
4.a)
degree of operating leverage=Change in operating income/ change in sale
degree of operating leverage= 45000/75000 = 0.6
4.b)
Sales with 20% increase = 400000*1.2 = 480000
Varible cost 20% increase = 160000*1.2 =192000
Fix Cost =180000
Operating Income =108000
Net increase in operating income = 108000/60000-1 = 80%
5)
A) 10% Decrease 25% increase in units
Sales 400000 360000 450000
Variable Cost -160000 0 -200000
Selling Cost 0 -30000 -30000
Fix Cost -180000 0 -180000
Net Oper. Income 60000 40000
Decrease in price will not affect the cost but sales will decrease by $40000
Increase in Sales units will also increase the Cost affects are shown above
In both case Fix cost will remain the same.
6.B)
No i will not recommend the manager's suggestion because the net operating will decrease by $ 20000 as shown above in part 5.a
6)
operating Income = 60000
Advertisement Expense = 60000
Current units sale = 20000*25% = 5000 increase in units
Net Cm * Increase in Units = 5000*12 = 60000 incremental Income Due to increase of 25% Sales
So putting the Same operating income That is 60000 and we have incremental income that can be used as Advertisement expense i.e 60000
