presentation on Business Law

Topics: Variable cost, Net income, Income statement Pages: 16 (1030 words) Published: April 24, 2015
PRESENTATION

ON
MANAGERIAL ACCOUNT

BY
ID-1406065
ID- 1406067
ID- 1406071
ID- 1406073
ID- 1406079

Dobojit Chakama
Md. Shahadat Hossain
Md Saiful Islam
Md Mustafizur Rahman
A B M Khaled Haider
1

Assignment
• Memofax, Inc., produces memory enhancement kits for fax
machines. Sales have been very erratic, with some months showing a profit and some months showing a loss. The company’s contribution format:
• Income statement for the most recent month is given below:  Sales (13,500 units at $20 per unit) . . . .... $270,000  Variable expenses . . . . . . . . . . . . . . . . . . . . 189,000  Contribution margin . . . . . . . . . . . . . . . . . . . 81,000  Fixed expenses . . . . . . . . . . . . . . . . . . . . . … 90,000  Net operating loss . . . . . . . . . . . . . . . . . . . . $ (9,000) 2

Requirements
• 1. Compute the company’s CM ratio and its break-even point in both units and dollars.
• 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.)

3

Requirements…cont…..
3. Refer to the original data. 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?

4. Refer to the original data. 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 changes, how many units would have to be sold each month to earn a 4

Requirements.. Cont..
5. Refer to the original data. By automating, the company could slash its variable expenses in half. However, fixed costs would increase by $118,000 per month.
a. Compute the new CM ratio and the new break-even
both units and dollars.

point in

b. Assume that the company expects to sell 20,000 units next month. Prepare two contribution format income
statements, one
assuming that operations are not automated and one assuming that they are.
c. Would you recommend that the company automate its
operations? Explain.
5

Requirement: 1 Compute the company’s CM ratio and its
break-even point in both units and dollars.
Solution: 1
The CM ratio is 30%.
Total
Per Unit
Percentage
Sales (13,500 units)…… $270,000
$20
variable expenses…$189,000 $14
70%
Contribution margin……..$ 81,000
$ 6

100%

Less

30%

The Break-even point is :
Sales = Variable expenses + Fixed expenses + Profits
$20Q = $14Q + $90,000 + $0
$ 6Q = $90,000
Q = $90,000 ÷ $6 per unit
Q = 15,000 units
15,000 units x $20 per unit = $ 300,000 in sales
Continue

6

Alternative Solution :
Break-even point
Fixed expenses
=
in unit sales
Unit contribution margin
=

$90,000

= 15,000 units
$6 per unit

Break-even point
=
in sales dollars
=

Fixed expenses

$90,000
0.30

CM ratio
= $300,000 in sales
7

Requiremet: 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.)

Solution:2
. Incremental contribution margin:
 
 
 
 

$70,000 increased sales × 30% CM ratio………..
Less increased fixed costs:
Increased advertising cost…………………………
Increase in monthly net operating income…………

 
$21,000
 
   8,000
$13,000

Since the company presently has a loss of $9,000 per month, if the changes are adopted, the loss will...
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