Hafiz muhammad usama javed

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Some Application of CVP ConceptsPer UnitPercent of SaleSelling price $250100%Variable expenses15060%Contribution margin$10040%

Change in Fixed Cost and Sales VolumeAcoustic concepts is currently selling 400 speakers per month at $250 per speaker. Total monthly sales is $100,000. The sales manager feels that a $10,000 increase in the monthly advertising budget would be increase increases in monthly sales by $30,000 to a total 520 units. Should the advertising budget be increased? The following table shows the financial impact of the proposed change in the monthly advertising.

Current SaleSale with Additional Advertising BudgetDifferencePercent of SaleSales$100,000$130,000$30,000100%Variable Expenses60,00078,00018,00060%Contribution Margin 40,00052,00012,00040%Fixed Expenses 35,00045,00010,000Net Operating Income$5000$7000$2000

Alternative solution 1Expected total contribution margin $130,000*40% CM ratio %52,000Present total contribution margin $100,000*40% CM ratio$40,000Incremental contribution margin 12,000Change in fixed expenses:Less incremental advertising expenses 10,000Increased net operating income

Alternative solution 2Incremental contribution margin $30,000*40%$12,000Less incremental advertising expenses 10,000Increased net operating income$2000

Change in Variable Costs and Sales VolumeExpected total contribution margin with higher-quality components:400units*$90 per unit/speaker$43,200Present total contribution margin: 400unit/speakers * $100 per unit/per speaker 40,000Increase in total contribution margin$3200

Change Fixed Costs, Sales price,and Sales VolumeExpected total contribution margin with lower selling price:600speakers*$80 per speaker$48,000Present total contribution margin:400spekers*$100 per speaker40,000Incremental contribution margin 8000Change in fixed expenses:Less incremental advertising expenses15,000Reduction in net operating income$(7000)

Present 400speakers per monthExpected 600 speakers per month

Total Per unittotalPer unitDifference Sales$100,000$250$138,000$230$38,000Variable expenses60,00015090,00015030,000Contribution margin40,00010048,000808,000Fixed expenses35,00050,00015,000Net operating income(Loss)$5000$(2000)$(7,000)

Change in Variable Costs, Fixed Costs, and Sales VolumeExpected Total contribution margin with sales staff on commissions: 460 speakers* $85 per speaker$39,100Present total contribution margin 400 speakers*$100 per speaker40,000Decreases in total contribution margin (900)Change in fixed expenses:Add salaries avoided if a commission is paid6,000Increases in net operating income$5100

Present 400 speakers per monthExpected 460 speakers per month

TotalPer unitTotal Per unit Difference Sale $100,000$250$115,000$250$15,000Variable expenses60,00015075,90016515,900Contribution margin40,000$10039,100$85900Fixed expenses35,00029,000(6,000)

Net operating income $5,000$10,100$5,100

Change in Selling priceVariable cost per speaker$150Desired profit per speaker $3,000/150 speakers20Quoted price per speaker$170