PROBLEM $8-1$

Performing Basic CVP Analysis $[$LO$1-$ CC$4$; LO$2-$ CC$6,7,10]$

CHECK FIGURE

$(2)$ Break$-$even:

$16,364$ units

Moncton Company distributes a lightweight lawn umbrella that sells for $$20$ per unit. Variable expenses are $45\%$ of sales,

and fixed expenses total $$180,000$ annually.

Required:

Answer the following independent questions:

What is the product's CM per unit?

Use the CM per unit to determine the break$-$even point in units.

The company estimates that sales will increase by $$50,000$ during the coming year due toUse the CM per unit to determine the break$-$even point in units.

The company estimates that sales will increase by $$50,000$ during the coming year due to

increased demand. By how much should net operating income increase?

Assume that the operating results for last year were as follows:

a$.$ Compute the degree of operating leverage at the current level of sales.

b$.$ The president expects sales to increase by $20\%$ next year. By how much should net

operating income increase?

Refer to the original data. Assume that the company sold $20,000$ units last year. The sales

manager is convinced that a $10\%$ reduction in the selling price, combined with a $$40,000$

increase in advertising expenditures, would increase annual unit sales by $50\%.$ Prepare two

contribution format income statements: one showing the results of last year's operations, andRefer to the original data. Assume that the company sold $20,000$ units last year. The sales

manager is convinced that a $10\%$ reduction in the selling price, combined with a $$40,000$

increase in advertising expenditures, would increase annual unit sales by $50\%.$ Prepare two

contribution format income statements: one showing the results of last year's operations, and

one showing what the results of operations would be if these changes were made. Would you

recommend that the company do as the sales manager suggests?

Refer to the original data. Assume again that the company sold $30,000$ units last year. The

president feels that it would be unwise to change the selling price. Instead, she wants to

increase the sales commission by $$2$ per unit. She thinks that this move, combined with some

increase in advertising, would double annual unit sales. By how much could advertising be

increased with profits remaining unchanged? Do not prepare an income statement; use the

incremental analysis approach.