Reference no: EM133061887
Question - Memofax, Inc. produces memory enhancement software for computers. Sales have been very erratic, with some months showing a profit and some months showing a loss. The company's contribution format income statement for the most recent month is given below:
Sales (22,000 units) $550,000
Less: Variable expenses 330,000
Contribution margin 220,000
Less: Fixed expenses 225,000
Net operating loss $(5,000)
1. Refer to the original data. By automating, the company could slash its variable expenses in half. However, fixed costs would increase by $41,000 per month.
a. Compute the new CM ratio and the new break-even point in both units and dollars.
b. Assume that the company expects to sell 27,000 units next month. Prepare two contribution format income statements: one assuming that operations are not automated, and one assuming that they are.
c. What is the point of indifference between the two options?
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