Chopra Company Developed the Following Income Statement Using a Contribution

question 46

Essay

Chopra Company developed the following income statement using a contribution margin approach: $\begin{array}{c} \text {CHOPRA COMPANY }\\ \text {PROJECTED INCOME STATEMENT}\\ \text { FOR THE CURRENT YEAR ENDING DECEMBER 31}\\\begin{array}{lll} \text {Sales}&&£240,000\\\\ \text {Less variable costs:}\\ \text {Variable manufacturing costs }&£ 60,000 \\ \text {Variable selling costs} & \_ 36,000 \\ \text {Total variable costs}&&\underline{96,000}\\ \text {Contribution margin}&&£ 144,000\\\\ \text {Less fixed costs:}\\ \text {Fixed manufacturing costs}&£ 85,000\\ \text {Fixed selling and administrative costs}&\underline{35,000}\\ \text {Total fixed costs}&&\_120,000\\ \text {Operating income}&&£24,000\end{array}\end{array}$
The projected income statement was based on sales of 12,000 units. Chopra has the capacity to produce 15,000 units during the year.
a.Determine the break-even point in units.
b.The sales manager believes the company could increase sales by 1,000 units if advertising expenditures were increased by £15,000. Determine the effect on income if the company increases advertising expenditures.
c.What is the maximum amount the company could pay for advertising if the advertising would increase sales by 1,000 units?

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Definitions:

Economic System

An organized arrangement for producing, distributing, and consuming goods.

Centralized Location

A position or place that serves as the central point for distribution or coordination of activities and services.

Formal Rules

Explicitly stated guidelines and laws that govern behavior and procedures within organizations or societies.

Conduct

The manner in which a person behaves, especially within a particular context or environment.