1.
Hartford Inc. produces memory enhancement kits for scanner machines. The company's
contribution format income statement for the most recent month is given below:
Sales (13,500 at $20 / unit) : $270,000
Variable Expenses : $189,000
Contribution Margin : 81,000
Fixed Expenses : 90,000
Net Operating Loss : 9,000
The president is convinced that a 10% reduction in selling price, combined with an increase of
$35,000 in monthly advertisting budget , will cause unit sales to double. How would the
company's net operating income change if these strategies were adopted?
Answer was Decrease By $8,000 but I don't get why, please show help with steps.
Solution
1.
The CM ratio is 30%.