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. points 100.000 eBook Sales (13,000 units X $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss 195,000 195,000 217.500 $(22.500) Print Reference 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 $89.000 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 $0.60 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,700? 5. Refer to the original data. By automating, the company could reduce variable expenses by S3 per unit. However, fixed expenses would increase by S51000 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 20,600 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 20.600? Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Req3 Reg4 Req 5A Req 5B Req 5C Compute the company's CM ratio and its break-even point in unit sales and dollar sales. (Do not round intermediate calculations. Round "CM ratio to the nearest whole percentage (i.e., 0.234 should be entered as "23").) CM ratio Break-even point in unit sales Break-even point in dollar sales - Req? Req 2 >

Answer 1

1) CM ratio, Break Even point in Units Dollars 50% 14500 435000 CM Ratio Break-Even Point in Units Break - Even Point in Dollars Formulas CM Ratio = Contribtuion Margin / Sales BEP in Units = Fixed Cost / CM per unit BEP in Dollars = Fixed cost / CM ratio 2) Increase in sales Increase in Contribution Margin (89000*50%) Increase in Fixed cost Increase in Net income 89000 44500 6700 37800 Increase By 37,800

Reduction in Selling Price Increase in Advertisements Sales Will be Double 10% 34000 PEM INC Contribution Margin Statement sales 702000 Variable Expenses 390000 Contribution Margin 312000 Fixed Expense 251500 Net Operating Loss 60500 Net Operating Loss 60500 New Package Increase the paking cost by Target Net income 0.60 4700 New Contribution Margin (15-0.60) 14.40 Sales Units (217500+4700)/14.4015430.6 Sales Units 15431

51000 Reduce the Varaibe cost by Fixed cost Will increase New Contibution Margin (15+3) New Fixed cost (2175000+51000) 18 268500 CM Ratio (15/30) 60% Break-Even Point in Units (2685000/18) 14917| Break - Even Point in Dollars 447500 Assume Company expeted to sell 20600 PEM INC Contribution Margin Statement Non Automated Automated Total Per unit % Total Per unit % sales 618000 30 100% 618000 30 Variable Expenses 309000 15 50% 247200 121 Contribution Margin 309000 50% 370800 18 Fixed Expense 217500 268500 Net Operating Income 91500 102300 100% 40% 60% Would you Recommand for Automation YES