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2 "Big TV World" purchases televisions from a reputable manufacturer and sells them 3 at the retail level. "Big TV World" sells the televisions, on average, for $2,000 each. 4 The average cost of a television from the manufacturer is $1,200. "Big TV World" 5 pays their salespeople a sales commission of 15% plus a monthly salary. Advertising costs 6 per month are $25,000, and total monthly sales salaries are $55,000. 7 8 In January "Big TV World" sold 1,400 televisions. Their corporate income tax rate is 15%. 9 REQUIRED: 10 1 For the month of January, prepare a three column income statement using the 11 contribution format. (9 marks) 12 13 14 15 2 Calculate the following for January: i contribution margin ratio (round to 2 decimals) ii breakeven point in sales revenue iii margin of safety in units iv operating leverage (round to 2 decimals) 16 (5 marks) 17 18 19 20 21 22 23 24 3 If the target net income is $646,000 for next month, how many televisions would have to be sold? (3 marks) 4 4 The sales manager is convinced that if all the following changes are implemented next month, unit sales will double (refer to the original data): decrease the unit selling price by $200. increase the monthly sales salaries by 100% increase the advertising budget by $72,000 per year. increase the sales commission to 20% 25 + + 26 27 28 29 30 31 22 Calculate the total impact on operating income of making all of the above changes and make recommendations to management based on your calculations. (Show all calculations clearly or no marks will be awarded) (8 marks)

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