Question

Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (12,900 units x $20 per unit) Variable expenses Contribution margin Fixed expenses 258,000 154,800 103,200 115,200 (12,000) Net operating loss Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6,700 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $88,000 increase in monthly sales. If the president is right, what will be the increase (decrease) in the company's monthly net operating income? 3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $33,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)? 4. Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase packaging costs by $0.70 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,800? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $55,000 each month. a. Compute the new CM ratio and the new break-even point in unit sales and dollar sales. b. Assume that the company expects to sell 20,400 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.) c. Would you recommend that the company automate its operations (Assuming that the company expects to sell 20,400)? Complete this question by entering your answers in the tabs below. Req 5B Req 1 Req 2 Req 3 Req 4 Req 5A Req 5C Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $55,000 each month. Assume that the company expects to sell 20,400 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.) (Do not round your intermediate calculations. Round your percentage answers to the nearest whole number.) Show less A PEM, Inc. Contribution Income Statement Not Automated Automated Total Per Unit Total Per Unit % % 0% 0% $ 0 $ 0 0 0 0 $ 0 Req 5A Req 5C

Just required 5b

Answer 1

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Ans: 5 (8) Total 1 unit Contribution Not Automated I per it : % sales (20400) $408000 $20 100% Variable Expenses $244,800 $12 60% Contribution . 18 163,200 $8 Hoy. мат fixed Expenses $115,200 [Net operating $48000 Income PEM, Inc. Income Statement : - Automated Total I per unit % $408000 420 100 % | $183, 600 89 45% 196224,400 $ 11 55% $ 170,800 $54,200