Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been...

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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 × $20 per unit)	$	258,000
Variable expenses		129,000
Contribution margin		129,000
Fixed expenses		144,000
Net operating loss	$	(15,000	)

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 $6,800 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $84,000 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 $34,000 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 $4,200?

5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $57,000 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 20,100 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 20,100)?

Reg 1 Req 2 Reg 3 Reg 4 Req 5A Req 5B Reg 5C Compute the companys CM ratio and its break-even point in unit sales and dollar Req 1 Reg 2 Req3 Reg 4 Req 5A Req 5B Req 5C The president believes that a $6,800 increase in the monthly advertising budget, Reg 1 Reg 2 Reg 3 Reg 4 Req 5A Req 5B Reg 5C Refer to the original data. The sales manager is convinced that a 10% reduction Reg 1 Reg1 Reg 2 Reaz Reg 3 Rea3 Reg 4 Rega Req 5A Reasa Reg 5B Rea SB Req 5C Refer to the original data. By automating, the Rega Rega Req 1 Rega Reasa Reg 2 Rease Reg 3 Reg 4 Req 5A Reg 5B Req 5C Refer to the original data. By automating, the compan Dropdown Options Rows 1 - 4 Administrative expenses Advertising Beginning merchandise inventory Commissions Cost of goods sol Reg 1 Reg1 Reg 2 Reg 2 Reg 3 Req3 Reg 4 Reg4 Reg 5A Req 5A Req 5B Req Se Reg 5C Reg 50 Refer to the original data. By automat

business accounting

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Answer 1

Answer #1

Per unit 20 sales Variable Expenses Contribution Margin Fixed Expense Net Operating Loss 12900 Units 258000 129000 129000 144 Reduction in Selling Price Increase in Advertisements Sales Will be Double 10% 34000 3) PEM INC Contribution Margin Statement 57000 Reduce the Varaibe cost by Fixed cost Will increase New Contibution Margin (10+3) New Fixed cost (144000+57000) 13 2010

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Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been...

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