Problem:
Date:
Sales (9,000 units @ $100) $900,000
Less variable cossts (9,000 @ $60) $540,000
Contribution Margin $360,000
Less Fixed Cost 400,000
Net Loss (40,000O
Required:
1) Compute Bi-Wheels breakeven point in both units and dollars. Also, compute the contribution margin ration.
2) The manager believes that a $40,000 increase in advertising would result in a $120,000 increase in annual sales. If the manager is right, what wil be the effect on the company's net income or loss?
3) Refer to the original data. The vice-president in charge of sales is certain that a 10% reduction in price in combination with a $30,000 increase in advertising will cause unit sales to increases by 50%. What effect would this strategy have on net income?
Here is what I have so far:
BE in units:
100 x Q = 400,000 +(60 x Q)
100Q = 400,000 + 60Q
100Q-60Q = 400,000
40Q= 400,000
Q= 10,000 units
BE in Dollars:
Y = (V/P) x Y + F
Y = (540,000/900,00) x Y + 400,000
Y = 0.60Y/400,000
Y/0.60Y + 0.60Y/400,000
Y/3/5 = 3/5/400,000
Please let me know what I am doing wrong or right and how to work 2 and 3, Thanks!!!!
Date:
Sales (9,000 units @ $100) $900,000
Less variable cossts (9,000 @ $60) $540,000
Contribution Margin $360,000
Less Fixed Cost 400,000
Net Loss (40,000O
Required:
1) Compute Bi-Wheels breakeven point in both units and dollars. Also, compute the contribution margin ration.
2) The manager believes that a $40,000 increase in advertising would result in a $120,000 increase in annual sales. If the manager is right, what wil be the effect on the company's net income or loss?
3) Refer to the original data. The vice-president in charge of sales is certain that a 10% reduction in price in combination with a $30,000 increase in advertising will cause unit sales to increases by 50%. What effect would this strategy have on net income?
Here is what I have so far:
BE in units:
100 x Q = 400,000 +(60 x Q)
100Q = 400,000 + 60Q
100Q-60Q = 400,000
40Q= 400,000
Q= 10,000 units
BE in Dollars:
Y = (V/P) x Y + F
Y = (540,000/900,00) x Y + 400,000
Y = 0.60Y/400,000
Y/0.60Y + 0.60Y/400,000
Y/3/5 = 3/5/400,000
Please let me know what I am doing wrong or right and how to work 2 and 3, Thanks!!!!