Reference no: EM132798014

Question - Silicon Cards makes a high-capacity memory card, ThumbDrive, for use in electronic equipment. Silicon's owner, Monique Mejia, started the company because she believed that memory cards would gain widespread acceptance. Monique believed the demand for portable electronics would increase and, in turn, stimulate the demand for memory cards.

During the upcoming year 2018, Silicon expects to sell 450,000 units of memory cards at an average selling price of $30 per card. Silicon's variable cost is $18 per card, and its annual fixed costs equal $4,800,000.

Required -

a. Using equation method, calculate the number of cards Silicon needs to sell to reach breakeven? What would be Silicon's sales revenue at breakeven?

b. Monique has decided that she must earn at least $150,000 in order to compensate her time and effort. What should be the amount of sales revenue Silicon must generate in order to earn this level of target profit?

c. What is Silicon's margin of safety (in sales dollar) and margin of safety in percentage?

d. What would be the company's degree of operating leverage with expected operation?

If sales increases by 20%, what would be the percentage change in net income using the degree of operating leverage? Prove your finding by preparing a new contribution format statement.

e. Silicon's Marketing Manager is requesting a 10% price cut combined with an increase in $750,000 of promotional cost. What would be Silicon's new breakeven sales revenue? Let's assume that the Marketing Manager believes sales will increase by 100,000 memory cards if Silicon approves these changes. By how much will Silicon's profit increase or decrease due to the advertising?