Question

Check my work 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 Skipped Sales (13,480 units x $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 492,00 201, eee 201, eee 223,589 $ (22,500) eBook Print References Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 12. The president believes that a $6,900 Increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $88,000 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 $38,000 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 $4.400? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $50,000 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 20,200 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 20,200)? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Reg 4 Req 5A Reg 5B Req 5C ...mouta.the.omnanus.COM.ratin and its heaken.nnint.io unit. sales and dollar.alas...On.nnt.mund. intermediate...

Answer 1

Per unit 30 15 sales Variable Expenses Contribution Margin Fixed Expense Net Operating Loss 13400 Units 402000 201000 201000 223500 -225001 1) CM ratio, Break Even point in Units Dollars 50% 14900 447000 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 (88000*50%) Increase in Fixed cost Increase in Net income 88000 44000 6900 37100 Increase By $ 37,100

Reduction in Selling Price Increase in Advertisements Sales Will be Double 10% 38000 PEM INC Contribution Margin Statement sales 723600 Variable Expenses 402000 Contribution Margin 321600 Fixed Expense 261500 Net Operating Loss 60100 Net Operating income 60100 New Package Increase the paking cost by Target Net income 4) New Pad 0.40 4400 New Contribution Margin (15-0.40) Sales Units (223500+4400)/14.60 14.60 15610 Sales Units 15610

Reduce the Varaibe cost by Fixed cost Will increase New Contibution Margin (15+3) New Fixed cost (223500+50000) 50000 18 273500 CM Ratio 60% Break-Even Point in Units = 15194 Break - Even Point in Dollars = 455833 Assume Company expeted to sell 20200 PEM INC Contribution Margin Statement Non Automated Automated Total Per unit % Total Per unit % sales 606000 30 100% 606000 30 Variable Expenses 303000 15 50% 242400 12 Contribution Margin 303000 15 50% 363600 181 Fixed Expense 223500 273500 Net Operating Income 79500 90100 100% 40% 60% Would you Recommand for Automation