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LOOKING FOR 5A AND 5B Memofax, Inc. produces memory enhancement software for computers. Sales have...

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Accounting

LOOKING FOR 5A AND 5B

Memofax, Inc. produces memory enhancement software for computers. Sales have been very erratic, with some months showing a profit and some months showing a loss. The companys contribution format income statement for the most recent month is given below:

Sales (22,500 units at $30 per unit) $ 675,000
Less: Variable expenses 472,500
Contribution margin 202,500
Less: Fixed expenses 211,500
Net operating loss $ (9,000)
Required:

5.

Refer to the original data. By automating, the company could slash its variable expenses in half. However, fixed costs would increase by $81,000 per month.
a.

Compute the new CM ratio and the new break-even point in both units and dollars. (Do not round intermediate calculations. Round "Contribution Margin Ratio" to 2 decimal places.)

b.

Assume that the company expects to sell 27,000 units next month. Prepare two contribution format income statements: one assuming that operations are not automated, and one assuming that they are. (Do not round intermediate calculations. Round "Per Unit" and "Percentage" to 2 decimal places.)

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