Reference no: EM133006043
Question - Riggs and Murtaugh Engine Inc. (RME) is suffering from the effects of increased local and global competition for its main product, a lawn mower that is sold in discount stores throughout the United States. The following table shows the results of RME's operations for 2018.
Sales (13,000 units x $83) $1,079,000
Variable costs (13,000 units x $62) 806,000
Contribution margin 273,000
Fixed costs 275,000
Operating profit (loss) (2,000)
-Compute RME's breakeven point in both units and dollars and compute the contribution margin ratio.
-What would be the required sales, in units and in dollars, to generate a pretax profit of $50,000?
-Assume a combined income tax rate of 25%. What would be the required sales volume, in both units and in dollars, to generate an after-tax profit of $50,000?
-Refer to the original data. The manager believes that a $45,000 increase in advertising would result in a $180,000 increase in annual sales. If the manager is right, what will be the effect on the company's operating profit or loss?
-Refer to the original data. The vice president in charge of sales feels that a 5% reduction in price in combination with a $40,000 increase in advertising will cause unit sales to increases by 40%. What effect would this strategy have on operating profit (loss)?
-Refer to the original data. During 2018, RME saved $5 of unit variable costs per lawn mower by buying from a different manufacturer. However, the cost of changing the plant machinery to accommodate the new part cost an additional $50,000 in fixed cost per year. Was this a wise change? Why or why not?
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