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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

Required: 1. Compute the companys CM ratio and its break-even point in unit sales and dollar sales. 2. The president believe

Req 1 Reg 2 Req3 Req 4 Req 5A Req 5B Req 5C Refer to the original data. The Marketing Department thinks that a fancy new pack

Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses

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PEM Inc.
Calculation of Variable expense per unit Amount $ Note
Variable expenses             198,000.00 A
Units sold               13,200.00 B
Variable expense per unit                       15.00 C=A/B
Answer 1 Amount $
Sales             396,000.00 D
Contribution margin             198,000.00 E
CM ratio 50.00% F=E/D
Units sold               13,200.00 See B
Contribution margin per unit                       15.00 G=E/B
Fixed expense             220,500.00 H
Break even units               14,700.00 I=H/G
Sell price                       30.00 J
Break even $            441,000.00 K=I*J
Answer 2
Increase in sales               84,000.00 L
CM ratio 50.00% See F
Increase in Contribution margin               42,000.00 M=L*F
Less: Advertising expense                 6,100.00
Increase in net operating income               35,900.00
Answer 3
Current Sell price                       30.00 See J
Reduction by 10%                         3.00 N=J*10%
Revised Sell price                       27.00 O=J-N
Current Sales units               13,200.00 See B
Increase by 100%               13,200.00 P=B*100%
Revised Sales units               26,400.00 Q=B+P
Income statement Amount $
Sell Price                       27.00 See O
Less: Variable expenses                       15.00 See C
Contribution per unit                       12.00 R
Units sold               26,400.00 See Q
Contribution margin            316,800.00 S=R*Q
Less: Fixed expense             220,500.00
Less: Advertising expense               31,000.00
Operating Income               65,300.00
Answer 4
Current Contribution per unit                       15.00
Less: packaging costs                         0.50
Revised Contribution per unit                       14.50 T
Target Profit                 4,200.00
Add: Fixed expense             220,500.00
Target Contribution            224,700.00 U
Revised Contribution per unit                       14.50 See T
Units to be sold               15,497.00 V=U/T
Workings for Answer 5
Current Variable cost per unit                       15.00
Reduction by                         3.00
Revised Variable cost per unit                       12.00 W
Current Fixed costs             220,500.00
Increase by               55,000.00
Revised Fixed costs            275,500.00 X
Answer 5 a Amount $ Note
Sell price                       30.00 See J
Less: Variable expenses                       12.00 See W
Contribution margin per unit                       18.00 Y
CM ratio 60.00% Z=Y/J
Fixed expense             275,500.00 See X
Break even units               15,306.00 AA=X/Y
Break even $            459,180.00 AB=AA*J
Answer 5 b Not Automated Automated Note
Sell Price                       30.00              30.00 See J
Less: Variable expenses                       15.00              12.00 See C, W
Contribution per unit                       15.00              18.00 AC
Units sold               20,000.00       20,000.00 AD
Contribution margin            300,000.00    360,000.00 AE=AC*AD
Less: Fixed expense             220,500.00    275,500.00 See H, X
Operating Income               79,500.00      84,500.00
Increase in Operating Income by         5,000.00
Answer 5 c
If automation is done then operating income will increase by $ 5,000 so yes the company should automate its operations.
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