Question

ONLY NEED PARTS 5 a,b,c to be answered. Thank you.

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 (12,600 units * $20 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss 5 252,000 151200 100, 500 112,800 $ (12,000) 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 $6.200 Increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $82,000 Increase in monthly sales. If the president is right, what will be the increase decrease in the companys 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 $37.000 in the monthly advertising budget. Will double unit sales. If the sales manager is right what will be the revised et operating income doss)? Next > 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 $6.200 increase in the monthly advertising budget, combined with staff, will result in an $82,000 increase in monthly sales. If the president is right, what will be the inc monthly net operating income? 3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price $37,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what income (loss)? 4. Refer to the original data. The Marketing Department thinks that a fancy new package for the lapto sales. The new package would increase packaging costs by $0.80 per unit. Assuming no other chan 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 $3 per would increase by $52.000 each month. . ..CM ratin and the new break-even point in unit sales and dollar sales.

Answer 1

(5a)

CM ratio	55%
Break Even Point in Units	14982 units
Break Even Point in dollars	$299640

CM ratio = Contribution per unit/SP pu * 100

Contribution per unit = SP pu - VC pu

Revised VC pu = ($151200/12600 units) - $3 = $9

Contribution per unit = $20 - $9 = $11

CM ratio = $11/$20 * 100 = 55%   

Break Even Point in Units :-

Fixed cost/Contribution pu

Revised Fixed cost = $112800 + $52000 = $164800

$164800/$11 = 14982 units

BEP in $ = 14982 * $20 = $299640

(5b)

	Not Automated			Automated
	Total	Per Unit		Total	Per Unit
Sales	$406000	$20	100%	$406000	$20	100%
Variable Exp	$243600	$12	60%	$182700	$9	45%
Contribution Margin	$162400	$8	40%	$223300	$11	55%
Fixed Expenses	$112800			$164800
Net Operating Income	$49600			$58500

(5c) Would you recommend that the company automate its operations?

YES