Penfast Electronics Sdn. Bhd.

(Penfast) is a manufacturer of high capacity batteries for electronic toll

transponders. The company has lately been experiencing erratic sales of this sole product. The
companys contribution format income statement for the month of March 2016 is as follows:

Sales (19,500 units x RM30 per unit)

Variable expenses
Contribution margin
Fixed expenses
Net operating loss

RM
585,000
409,500
175,500
180,000
(4,500)

Required:
a. Compute the companys contribution margin ratio and its break-even point in both unit sales
and dollar sales.
(8)
b. The general manager believes that a RM16,000 increase in the monthly advertising budget,
combined with an intensified effort by the sales staff, will result in an RM80,000 increase in
monthly sales. If the general manager is right, what will be the effect on the companys monthly
net operating income or loss? (Use the incremental approach in preparing your answer).
(5)
c. Refer to the data for Penfast. The sales manager is convinced that a 10% reduction in the selling
price, combined with an increase of RM60,000 in the monthly advertising budget, will double
unit sales. What will the new contribution format income statement look like if these changes
are adopted?
(5)
d. Refer to the data for Penfast. The marketing manager thinks that a fancy new package for the
transponder battery would help improve sales. The new package would increase packaging
costs by RM0.75 cents per unit. Assuming no other changes, how many units would have to be
sold each month to earn a profit of RM9,750.
(3)
e. Refer to the data for Penfast. Automation of the manufacturing process could reduce variable
expenses by RM3 per unit. However, fixed expenses would increase by RM72,000 each month.
i.

ii.

iii.

Compute the new contribution margin ratio and the new break-even point in both unit
sales and dollar sales.
(7)
Assume that the company expects to sell 26,000 units next month. Prepare two
contribution format income statements, one assuming that operations are not
automated and one assuming that they are. (Show data on a per unit and percentage
basis, as well as in total, for each alternative.)
(8)
Would you recommend that the company automate its operations? Explain.