Following is the contribution margin income statement of a single product company:

Total Per unit

Sales $1,200,000 $80
Less variable expenses $840,000 $56

-
Contribution margin 360,000 $24
Less fixed expenses 300,000 -



Net operating income $60,000




Required:
1. Calculate break-even point in units and dollars.
2. What is the contribution margin at break-even point?
3. Compute the number of units to be sold to earn a profit of $36,000.
4. Compute the margin of safety using original data.
5. Compute CM ratio. Compute the expected increase in monthly net operating if sales increase by
$160,000 and fixed expenses do not change.

Metro International manufactures two products plasma TV and high quality laptop. Plasma TV
sells for $800 and high quality laptop for $1200. Company sells its products through its own stores and
other outlets. Total fixed expenses of Metro International are $132,000 per month. Variable expenses
and monthly sales data are given below:

Plasma TV Laptop
Variable expenses per unit $480 $240
Monthly sales in units 200 Units 80 Units
Required:
1. Prepare a contribution margin format income statement showing dollars and percent columns for
products and for the company as a whole.
2. Compute the break-even point in dollars and margin of safety.
3. Metro International is considering to manufacture another product an inverter. The addition of new
product will not effect the fixed cost of the company. The variable expenses to manufacture and sell an
inverter will be $1,200. If the new product is sold for $1,600 the monthly expected sales are 40
inverters.
(a). Prepare a new contribution margin income statement.
(b). Compute the new break-even point and margin of safety of the company.
4. The president is unable to understand the increase in break-even sales because the new product has
increased the sales revenue and contribution margin without any increase in fixed costs. Explain to the
president the reason of increase in break-even sales.

PNG electric company manufactures a number of electric products. Rechargeable light is one of the
PNGs products that sells for $180/unit. Total fixed expenses related to rechargeable electric light are
$270,000 per month and variable expenses involved in manufacturing this product are $126 per unit.
Monthly sales are 8,000 rechargeable lights.
Required:
1. Compute break-even point of the company in dollars and units.
2. According to a research conducted by sales department, a 10% reduction in sales price will result in
25% increase in unit sale. Prepare two income statements in contribution margin format, one using the
current price and one using proposed price (10% below the old sales price).
3. Compute the number of rechargeable lights to be sold to earn a net operating income of $144,000 per
month.

Zoltrixound company manufactures high quality speakers for desktop and laptop computers. Last
month Zoltrixound suffered a loss of $18,000. The income statement of the last month is as follows:
Sales (13,500 units $40) 540,000
Less variable expenses 378,000


Contribution margin 162,000
Less fixed expenses 180,000


Net operating loss $(18,000)


Required:
1. Compute the break-even point and contribution margin ratio of Zoltrixound company?
2. Sales department feels that if monthly advertising budget is increased by $16000, the sales will be
increased by $140,000. Show the effect of this change.
3. If sales price is reduced by 20% and monthly advertising expenses are increased by $70,000, the unit
sales are expected to increase by 100%. Show the effect of this change by preparing a new income
statement of Zoltrixound company.
4. The Zoltrixound wants to make the packing of its product more attractive. The new packing would
increase cost by $1.20 per unit. Assuming no other changes, compute the number of units to be sold
to earn a net operating income of $9,000.
5. The company is planning to purchase a new machine. The installation of new machine will increase
fixed cost by $236,000 and decrease unit variable expenses by 50%.
(a). Compute the CM ratio and break-even point if the new machine is installed.
(b). Company expects a sale of 20,000 units for the next month. Prepare two income statement, one
assuming that the machine is not installed and one assuming that it is installed.
(c) Should the company install new machine. Give your recommendations.