Question: Pro-Data distributes a high-quality multi-function lap top computer that currently sells for $1,250. Variable costs are $750 per unit and the monthly fixed costs are
| Pro-Data distributes a high-quality multi-function lap top computer that currently sells for $1,250. Variable costs are $750 per unit and the monthly fixed costs are $160,000. The company's income tax rate is 20% and last month (September) they sold 400 units. | |||||||||
| 1. Calculate the following: (4 marks) | |||||||||
| i. breakeven point in units and in sales revenue | |||||||||
| ii. margin of safety in units | |||||||||
| iii. operating leverage | |||||||||
| 2. The sales manager estimates that unit sales will increase by 8% next month. By how much should net income increase in dollars? (3 marks) | |||||||||
| 3. If the target net income is $84,000, how many units would have to be sold in October to achieve this target? (2 marks) | |||||||||
| 4. Refer to the original data. The sales manager is convinced that if all of the following changes are implemented next month, units sales will increase by 20%: (6 marks) | |||||||||
| i. provide a sales commission of 5% for each computer sold | |||||||||
| ii. increase the annual sales salaries by $30,000 | |||||||||
| iii. increase the monthly advertising budget by $5,000 | |||||||||
| iv. decrease the unit selling price by $50 | |||||||||
| Would you agree with the sales managers' changes? (Show calculations) | |||||||||
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