Student Name: Muhammad Ammar Abbasi (032)

Class: BSBA-3B
Problem 5-20

MEMOFAX, INC.

1. Contribution margin ratio: Percent

Total Per Unit of Sales
Sales $ 270,000 $ 20 100%
Variable expenses 189,000 14 70%
Contribution margin $ 81,000 $ 6 30%
Correct! Correct! Correct!
Break-even point:
Sales price per unit $ 20
Variable expense 189,000
Fixed expense 90,000
Profits (9,000)
Break-even point (units) 15,000 Correct!
Break-even point (dollars) $ 300,000 Correct!

Alternative break-even
point calculation:
Break-even point (units) 15,000 Correct!
Break-even point (dollars) $ 300,000 Correct!

2. Incremental contribution margin:

Increased sales $ 21,000
Less increase advertising cost 8,000
Increase in monthly net income $ 13,000 Correct!

Current loss per month $ (9,000)

Add increase 5,000
Total income per month $ 4,000 Correct!

3. Sales $ 486,000
Variable expenses 378,000
Contribution margin 108,000
Fixed expenses 125,000
Net loss $ (17,000) Correct!

4. Units sold to reach target profit:

Sales price per unit $ 20
Unit contribution margin 5.40
Fixed expenses 90,000
Profits 4,500
Number of units 17,500 Correct!

Alternative calculation:
Number of units 17,500 Correct!
 Student Name: Muhammad Ammar Abbasi (032)
Class: BSBA-3B
Problem 5-20

5a. Contribution margin ratio: Percent

Per Unit of Sales
Sales price per unit $ 20 100%
Variable expenses 7 35%
Contribution margin $ 13 65%
Correct! Correct!
Break-even point:
Fixed expense $ 208,000
Unit contribution margin 13
Break-even point in unit sales 16,000 Correct!
Contribution margin ratio 65%
Break-even point in sales dollars $ 320,000 Correct!

5b. Comparative income statements: Not Automated Automated

Total Per Unit % Total Per Unit
Sales $ 400,000 $ 20 100% $ 400,000 $ 20
Variable expenses 280,000 14 70% 140,000 7
Contribution margin 120,000 $ 6 30% 260,000 $ 13
Fixed expenses 90,000 208,000
Net operating income $ 30,000 $ 52,000
Correct! Correct!
OFAX, INC.
Automated
%
100%
35%
65%
Given Data P05-20:

MEMOFAX, INC.

Information from recent month's income statement:

Sales $ 270,000
Units sold 13,500
Sales price per unit $ 20
Variable expenses 189,000
Contribution margin 81,000
Fixed expenses 90,000
Net operating loss $ (9,000)

Information for Part 2:

Increase in monthly advertising budget $ 8,000
Increase in monthly sales $ 70,000

Information for Part 3:

Reduction in selling price 10%
Increase in monthly advertising budget $ 35,000
Increase in monthly unit sales 200%

Information for Part 4:

Increase in packaging cost per unit $ 0.60
Targeted profit each month $ 4,500

Information for Part 5:

Reduction in variable costs per unit 50%
Increase in monthly fixed costs $ 118,000
Expected sales in units 20,000
 Student Name: Muhammad Ammar Abbasi (032)
Class: BSBA-3B
Problem 5-21

STRATFORD COMPANY
Calculations

1. CM ratio Dollars Ratio

Sales price $ 15 100%
Variable expenses 6 40%
Contribution margin $ 9 60%
Correct! Correct!
2. Dollar sales to break even
Fixed expenses $ 180,000
CM ratio 60%
Break-even sales $ 300,000
Correct!
3. Net income increase
Increased sales $ 45,000
CM ratio 60%
Increased contribution margin $ 27,000
Fixed costs change -
Net operating income increase $ 27,000
Correct!
4. a. Degree of operating leverage
Contribution margin $ 216,000
Net operating income $ 36,000
Degree of operating leverage 6
Correct!
b. Increase in net operating income
Degree of op. leverage 6
% Sales increase 15%
% Increase in net operating income 90%
Correct!
$ increase in net operating income $ 32,400
Correct!

5.
STRATFORD COMPANY
Contribution Income Statement

Units Units
Last Year: 28,000 Proposed: 42,000
Total Per Unit Total Per Unit
Sales $ 420,000 $ 15.00 $ 567,000 $ 13.50
Variable expenses 168,000 6.00 252,000 6.00
Contribution margin 252,000 $ 9.00 315,000 $ 7.50
Fixed expenses 180,000 250,000
Net operating income $ 72,000 $ 65,000
Correct! Correct!

Company must not do what sales manager suggests as it will decrease NOI by 9.72%.

6. Incremental analysis

Expected total contribution margin $ 392,000

Present total contribution margin 252,000
Incremental contribution margin $ 140,000
Student Name: Muhammad Ammar Abbasi (032)
Class: BSBA-3B
Problem 5-21

Correct!
Given Data P05-21:

STRATFORD COMPANY

Unit price $ 15
Variable cost per unit $ 6
Annual fixed costs $ 180,000

Estimated sales increase $ 45,000

Operating results last year:

Sales $ 360,000
Variable expenses 144,000
Contribution margin 216,000
Fixed expenses 180,000
Net operating income $ 36,000

Expected percentage sales increase next year 15%

Units sold last year 28,000
Percentage reduction in sales price 10%
Increase in advertising expense $ 70,000
Expected percentage increase in sales 50%

Increase in sales commission per unit $ 2

Expected percentage increase in sales 100%