Student Name:

Class:
Problem 6-18

STRATFORD COMPANY
Calculations

1. CM ratio Dollars Ratio

Selling price
Variable expenses
Contribution margin

2. Break-even point in total sales dollars

Fixed expenses
CM ratio
Break-even sales

3. Net income increase

Increased sales
CM ratio
Increased contribution margin
Fixed costs change
Net income increase

4. a. Operating leverage
Contribution margin
Net income
Degree of operating leverage

b. Increase in net operating income

Degree of op. leverage
% Sales increase
Increase in net operating income

STRATFORD COMPANY
Contribution Income Statement

5. Units Units
Last Year: Proposed:
Total Per Unit Total Per Unit
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
 Student Name:
Class:
Problem 6-18

6. Incremental analysis

Expected total contribution margin

Present total contribution margin
Incremental contribution margin
Given Data P06-18:

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

Check figure:
(2) Breakeven $300,000
 Student Name:
Class:
Problem 6-19

MEMOFAX, INC.

1. Contribution margin ratio: Percent

Total Per Unit of Sales
Sales
Variable expenses
Contribution margin

Break-even point:
Sales
Variable expense
Fixed expense
Profits
Break-even point (units)
Break-even point (dollars)

Alternative break-even
point calculation:
Break-even point (units)
Break-even point (dollars)

2. Incremental contribution margin:

Increased sales
Less increase advertising cost
Increase in monthly net income

Current loss per month

Add increase
Total income per month

3. Sales
Variable expenses
Contribution margin
Fixed expenses
Net loss

4. Units sold to reach target profit:

Sales
Variable expenses
Fixed expenses
Profits
Number of units

Alternative calculation:
Number of units
 Student Name:
Class:
Problem 6-19

5a. Contribution margin ratio: Percent

Per Unit of Sales
Sales
Variable expenses
Contribution margin

Break-even point:
Fixed expense
Unit contribution margin
Break-even point in unit sales
Contribution margin ratio
Break-even point in sales dollars

5b. Comparative income statements: Not Automated Automated

Total Per Unit % Total Per Unit %
Sales
Variable expenses
Contribution margin
Fixed expenses
Net income
Given Data P06-19:

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 45,000

Information for Part 5:

Reduction in variable costs per unit 0.5
Increase in monthly fixed costs 118,000
Expected sales in units 20,000

Check figures:
(1) Breakeven (units) $15,000
(4) Units 17,500