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

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Answer #1

Original Data:

Selling Price per unit = $30.00

Variable Cost per unit = Variable Expenses / Number of units sold
Variable Cost per unit = $234,000 / 13,000
Variable Cost per unit = $18.00

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $30.00 - $18.00
Contribution Margin per unit = $12.00

Answer 1.

Contribution Margin Ratio = Contribution Margin per unit / Selling Price per unit
Contribution Margin Ratio = $12.00 / $30.00
Contribution Margin Ratio = 40%

Breakeven Point in unit sales = Fixed Expenses / Contribution Margin per unit
Breakeven Point in unit sales = $174,000 / $12.00
Breakeven Point in unit sales = 14,500

Breakeven Point in dollar sales = Fixed Expenses / Contribution Margin Ratio
Breakeven Point in dollar sales = $174,000 / 0.40
Breakeven Point in dollar sales = $435,000

Answer 2.

Increase in Sales = $88,000
Increase in Fixed Expenses = $6,700

Increase in Net Operating Income = Increase in Sales * Contribution Margin Ratio - Increase in Fixed Expenses
Increase in Net Operating Income = $88,000 * 0.40 - $6,700
Increase in Net Operating Income = $28,500

Answer 3.

Selling Price per unit = $30.00 - 10% * $30.00
Selling Price per unit = $27.00

Fixed Expenses = $174,000 + $30,000
Fixed Expenses = $204,000

Number of units sold = 2 * 13,000
Number of units sold = 26,000

Net Operating Income (Loss) = Number of units sold * (Selling Price per unit - Variable Cost per unit) - Fixed Expenses
Net Operating Income (Loss) = 26,000 * ($27.00 - $18.00) - $204,000
Net Operating Income (Loss) = $30,000

Answer 4.

Variable Cost per unit = $18.00 + $0.50
Variable Cost per unit = $18.50

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $30.00 - $18.50
Contribution Margin per unit = $11.50

Required Unit Sales = (Fixed Expenses + Target Profit) / Contribution Margin per unit
Required Unit Sales = ($174,000 + $4,400) / $11.50
Required Unit Sales = 15,513

Answer 5-a.

Variable Cost per unit = $18.00 - $3.00
Variable Cost per unit = $15.00

Fixed Expenses = $174,000 + $58,000
Fixed Expenses = $232,000

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $30.00 - $15.00
Contribution Margin per unit = $15.00

Contribution Margin Ratio = Contribution Margin per unit / Selling Price per unit
Contribution Margin Ratio = $15.00 / $30.00
Contribution Margin Ratio = 50%

Breakeven Point in unit sales = Fixed Expenses / Contribution Margin per unit
Breakeven Point in unit sales = $232,000 / $15.00
Breakeven Point in unit sales = 15,467

Breakeven Point in dollar sales = Fixed Expenses / Contribution Margin Ratio
Breakeven Point in dollar sales = $232,000 / 0.50
Breakeven Point in dollar sales = $464,000

Answer 5-b.

PEM, Inc. Contribution Income Statement Not Automated Automated Total Per Unit % Total Per Unit Sales $ 624,000 $ 30.00 100.0

Answer 5-c.

Yes, company should automate its operations

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