Question

1. Compute the company’s CM ratio and its break-even point in unit sales and dollar sales.

2. The president believes that a $6,400 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $87,000 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 $40,000 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 $0.40 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,500?

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 20,900 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 20,900)?

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 (13,000 units * $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 390.000 195,000 195.000 217,500 (22,500) 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 $6,400 Increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $87,000 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 $40,000 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 $0.40 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,500? 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 20,900 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 20,900)? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req3 Reg 4 Reg 58 Reg SC 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 (1.e., 0.234 should be entered as "23").) CM ratio Break-even point in unit sales Break-even point in dollar sales

Answer 1

	Particulars	Amout
	Sales	390,000	13000 Units
	Variable Exp	195,000
	Contribution Margin	195,000
	Fixed Exp	217,500
	Net Operating Loss	(22,500)
1	CM ratio	Contribution/ Sales
	=	50%
	Breakeven Point(Units)	Fixed Cost/Contribution Per Unit
	Fixed Cost	217,500
	Contribution per unit	15
	=	14,500
	Breakeven Point(Amount)	(Fixed Cost/Contribution %
		435,000
2
	Revises Sales	477,000
	Variable Exp	238,500	50% of Sales
	Contribution Margin	238,500
	Fixed Exp Revised	223,900
	Net Operating Profit	14,600
3
	Revised No Of Units sold	26,000
	Revised Sales Price	27
	Total Sales	702,000
	Variable Exp *	390,000
	Contribution Margin	312,000
	Fixed Exp Revised	257,500
	Net Operating Profit	54,500

*(It has been assumed that variable cost per unit will not be changed due to reduction in sales price, hence 50% of original sales price will be the variable cost)                 4 Target Profit              4,500 Target Contribution          221,500 Revised Variable cost /unit              15.40 Revised Contribution/Unit              14.60 Units to be sold            15,171                 5 Auto Mation Revised Variable cost /unit                    12 Revised Fixed Cost          272,000 Revised Contribution/Unit                    18 A. CM Ratio New 60% Break Even (Units)            15,111 Break Even (Amount)          453,333 B. Automation % No Automation % Units to be sold            20,900                                                                                  20,900 Total Sales          627,000 100%                                                                               627,000 100% Variable Cost Per Unit                    15                                                                                          12 Variable Exp            313,500 50%                                                                               250,800 40% Contribution Margin          313,500 50%                                                                               376,200 60% Fixed Cost          217,500 35%                                                                               272,000 43% Net Operating Profit            96,000 15%                                                                               104,200 17% C. The company should not automate its operations if it expects to sell 20,900 units