Question 1. (30%)

Paulsen Company sells only one product.The regular selling price is $50.Variable costs are 70% of

this selling price, and fixed costs are $7,500 per month.

Management decides to increase the selling price from $50 to $55 per unit.Assume that the cost

of the product and the fixed operating expenses are not changed by this pricing decision.

1Refer to the above data.At the original selling price of $50 per unit, what is the contribution margin ratio?

2Refer to the above data.At the original selling price of $50 per unit, how many units must Paulsen sell to break even?

3Refer to the above data.At the original selling price of $50 per unit, what dollar volume of sales per month is required for Paulsen to earn a monthly operatingincome of $5,000?

4Refer to the above data.At the increased selling price of $55 per unit, what is the contribution margin ratio?

5Refer to the above data.At the increased selling price of $55 per unit, what dollar volume of sales per month is required to break-even?

Question 2. (35%)

What are the benefits and challenges of budgeting?

Question 3. (35%)

What elements would you consider to build a Master Budget and what process would be followed to complete it?

Formalities:

• Wordcount: 1,000 words
• Cover, Table of Contents, References and Appendix are excluded from the total wordcount.
• Font: Arial 12,5 pts.
• Text alignment: Justified.

The in-text References and the Bibliography have to be in Harvard’s citation style