Reference no: EM133155841

Question - Mouse House sells quality mouse cages for $25 per unit. The company's contribution format income statement for the most recent month is given below:

Sales (20,000 units) $500,000

Variable expenses 300,000 

Contribution margin 200,000

Fixed expenses 195,000 

Net operating loss $5,000

Required - Answer each question independently based on the original data:

1. Calculate the company's break-even point in dollar sales.

2. Calculate the company's margin of safety in dollars.

3. The president believes that a $30,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $90,000 per month. If the president is right, what will be the increase (decrease) in the company's monthly net operating income?

4. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $75,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)?

5. Using the degree of operating leverage, estimate the percent impact on net operating income of a 5% increase in unit sales.