Problem #1 (35 points) ABC Company's income statement for the month of March shows the following...
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Problem #1 (35 points) ABC Company's income statement for the month of March shows the following results: Sales (19,500 units) Variable expenses Contribution margin Fixed expenses Pre-tax (loss) $585,000 $409,500 $175,500 $180,000 $ (4,500) REQUIRED: A. Calculate ABC's contribution margin ratio. B. What is ABC's break-even point in both units and dollars? C. The company's CEO wants to invest an additional $16,000 in the monthly advertising budget and she believes this will result in an $80,000 increase in monthly sales. Assuming she's right, what will the increase (decrease) be in ABC's pre-tax income (loss)? D. Refer to the original data. By increasing efficiency, ABC can reduce variable expenses by $3 per unit, however, fixed expenses would increase by $72,000 each month. What is the new contribution margin ratio? Calculate the new break-even point in both units and dollars. E. Independent of this problem, explain how a shift in sales mix could result in both a higher break- even point and a lower pre-tax income? Problem #1 (35 points) ABC Company's income statement for the month of March shows the following results: Sales (19,500 units) Variable expenses Contribution margin Fixed expenses Pre-tax (loss) $585,000 $409,500 $175,500 $180,000 $ (4,500) REQUIRED: A. Calculate ABC's contribution margin ratio. B. What is ABC's break-even point in both units and dollars? C. The company's CEO wants to invest an additional $16,000 in the monthly advertising budget and she believes this will result in an $80,000 increase in monthly sales. Assuming she's right, what will the increase (decrease) be in ABC's pre-tax income (loss)? D. Refer to the original data. By increasing efficiency, ABC can reduce variable expenses by $3 per unit, however, fixed expenses would increase by $72,000 each month. What is the new contribution margin ratio? Calculate the new break-even point in both units and dollars. E. Independent of this problem, explain how a shift in sales mix could result in both a higher break- even point and a lower pre-tax income?
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Related Book For
Managing Supply Chain and Operations An Integrative Approach
ISBN: 978-0132832403
1st edition
Authors: Thomas Foster, Scott E. Sampson, Cynthia Wallin, Scott W Webb
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