The Isbit Company has developed the following income statement using a contribution margin format. The projected income statement was based upon sales of 10,000 units. Anton has the capacity to produce 15,000 units during the year.
a. Determine the break-even point in units.
b. Calculate the margin of safety in dollars.
c. The sales manager believes the company could increase sales by 1,000 units if advertising expenditures are increased by $16,000. Should the company increase advertising expenditures?
d. What is the maximum amount the company could pay for advertising if the advertising would increase sales by 1,000 units?
e. Management believes that by lowering the selling price to $17 per unit, the company can increase sales by 2,000 units. Based upon these estimates, would it be profitable for the company to lower its selling price?

Question

The Isbit Company has developed the following income statement using a contribution margin format.  The projected income statement was based upon sales of 10,000 units. Anton has the capacity to produce 15,000 units during the year.
a. Determine the break-even point in units.
b. Calculate the margin of safety in dollars.
c. The sales manager believes the company could increase sales by 1,000 units if advertising expenditures are increased by $16,000. Should the company increase advertising expenditures?
d. What is the maximum amount the company could pay for advertising if the advertising would increase sales by 1,000 units?
e. Management believes that by lowering the selling price to $17 per unit, the company can increase sales by 2,000 units. Based upon these estimates, would it be profitable for the company to lower its selling price?

Quizplus · Accepted Answer

The Answer of The Isbit Company has developed the following income statement using a contribution margin format.  The projected income statement was based upon sales of 10,000 units. Anton has the capacity to produce 15,000 units during the year.
a. Determine the break-even point in units.
b. Calculate the margin of safety in dollars.
c. The sales manager believes the company could increase sales by 1,000 units if advertising expenditures are increased by $16,000. Should the company increase advertising expenditures?
d. What is the maximum amount the company could pay for advertising if the advertising would increase sales by 1,000 units?
e. Management believes that by lowering the selling price to $17 per unit, the company can increase sales by 2,000 units. Based upon these estimates, would it be profitable for the company to lower its selling price?

The Isbit Company Has Developed the Following Income Statement Using