Question

In: Accounting

Carmen, Inc. produces Electronic Games for personal uses. The company’s contribution format income statement is given...

Carmen, Inc. produces Electronic Games for personal uses. The company’s contribution format income statement is given below:

Sales (20,000 units)

360,000

Variable expenses

280,000

Contribution margin

80,000

Fixed expenses

92,000

Net Loss

(8,000)

Required:

  1. Compute the company’s CM ratio and its break-even point in both units and dollars
  2. The production manager proposed to include a new component in the product that would increase direct material cost by $1.5 per unit. But this requires a promotional campaign which costs $22,000 to maintain same number of unit sales. Do you accept the proposal? Explain Why?

Solutions

Expert Solution

The decision might change if there is an increase in selling price due to the usage of new component. But information regarding the change in selling price is not given.

ekkarill92 answered 3 years ago
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