The document discusses various scenarios involving changes to sales volume, costs, prices, and expenses for a company that sells speakers. It analyzes how these changes would impact contribution margin and net operating income. Specifically: 1) Increasing the advertising budget by $10,000 could increase monthly sales by $30,000 units and contribution margin by $12,000, exceeding the $10,000 extra spent on advertising. 2) Using higher quality components could increase contribution margin by $3,200 despite higher variable costs per unit. 3) Lowering prices to sell more speakers could increase volume but reduce contribution margin and net operating income if the increase in fixed costs from selling more units exceeds the increased contribution margin

1. HAFIZ MUHAMMAD
USAMA JAVED
BBA-13-01

2. Some Application of CVP Concepts
Per Unit Percent of Sale
Selling price $250 100%
Variable expenses 150 60%
Contribution margin $100 40%

3. Change in Fixed Cost and Sales Volume
 Acoustic 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.

4. Current Sale Sale with Additional
Advertising Budget
Difference Percent of Sale
Sales $100,000 $130,000 $30,000 100%
Variable Expenses 60,000 78,000 18,000 60%
Contribution Margin 40,000 52,000 12,000 40%
Fixed Expenses 35,000 45,000 10,000
Net Operating
Income
$5000 $7000 $2000

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

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

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

10. Change Fixed Costs, Sales price,and Sales
Volume
Expected total contribution margin with lower selling price:
600speakers*$80 per speaker
$48,000
Present total contribution margin:400spekers*$100 per speaker 40,000
Incremental contribution margin 8000
Change in fixed expenses:
Less incremental advertising expenses 15,000
Reduction in net operating income $(7000)

11. Present 400speakers per
month
Expected 600 speakers per month
Total Per unit total Per unit Difference
Sales $100,000 $250 $138,000 $230 $38,000
Variable expenses 60,000 150 90,000 150 30,000
Contribution
margin
40,000 100 48,000 80 8,000
Fixed expenses 35,000 50,000 15,000
Net operating
income(Loss)
$5000 $(2000) $(7,000)

12. Change in Variable Costs, Fixed Costs, and
Sales Volume
Expected Total contribution margin with sales staff on commissions:
460 speakers* $85 per speaker
$39,100
Present total contribution margin 400 speakers*$100 per speaker 40,000
Decreases in total contribution margin (900)
Change in fixed expenses:
Add salaries avoided if a commission is paid 6,000
Increases in net operating income $5100

13. Present 400 speakers per
month
Expected 460 speakers
per month
Total Per unit Total Per unit Difference
Sale $100,000 $250 $115,000 $250 $15,000
Variable
expenses
60,000 150 75,900 165 15,900
Contributio
n margin
40,000 $100 39,100 $85 900
Fixed
expenses
35,000 29,000 (6,000)
Net
operating
income
$5,000 $10,100 $5,100

14. Change in Selling price
Variable cost per speaker $150
Desired profit per speaker $3,000/150 speakers 20
Quoted price per speaker $170