The Isbit Company Has Developed the Following Income Statement Using

question 52

Essay

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?

---

Definitions:

Cash Receipts

The collection of money, including cash, checks, and credit card payments, received by a business during a period.

Minimum Cash Balance

The lowest amount of cash that a company or individual aims to hold in order to meet operational and transaction needs.

Net Operating Income

The profit generated from a business's core operations, excluding expenses and revenues from non-operating activities.

Estimated

Refers to approximate calculations or judgments about figures or values that are not precisely known.