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: Sales (13,100 units $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 393,000 196,500 196,500 219,000 $ (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 $6,600 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 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 $36,000 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 $4,800? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $57,000 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)?

Answer 1

Solution 1:
Contribution margin	196500
/Sales units	13100
Contribution margin per unit	15
/ Sales price per unit	30
Contribution Margin ratio	50%
Fixed costs	219000
/Contribution Margin per unit	15
break-even point in units	14600
Fixed costs	219000
/Contribution Margin ratio	50%
break-even point in dollars	438000
Solution 2:
Increase in sales	82000
*Contribution Margin ratio	50%
Increase in Contribution margin	41000
Less: Increase in advertising expense	6600
Net operating income Increase by =	34400
Solution 3:
Information:
New Sale Price (existing sales price*90%)	27
New sales units (existing units* 200%)	26200
New Fixed costs (Existing cost+ 31000)	255000
Variable cost per unit	15
PEM, Inc..
Contribution Income statement
Sales (New units *New Price)	707400
Less: variable costs	393000
Contribution margin	314400
Less: New Fixed costs	255000
Net Operating income	59400
Solution 4:
Fixed costs	219000
Add: Taget Profit	4800
Total Amount to be earned	223800
/New Contribution Margin per unit (Existing - $0.60)	14.40
Sales units to earn target income	15542
Solution 5-a:
Contribution margin (existing + $3)	18
/ Sales price per unit	30
New Contribution Margin ratio	60%
New Fixed costs (Existing + Increase)	276000
/Contribution Margin per unit	18
break-even point in units	15333
Fixed costs	276000
/Contribution Margin ratio	60%
break-even point in dollars	460000
Solution 5-b:
PEM, Inc.
Contribution income statement
	Not automated	Automated
	Total	Per unit	%	Total	Per unit	Add a comment Know the answer? Add Answer to: Due to erratic sales of its sole product-a high-capacity battery for laptop computers—PEM, Inc., has been... Your Answer: Post as a guest Your Name: What's your source? Earn Coins Coins can be redeemed for fabulous gifts. Log In Sign Up Post as anonymous Post Your Answer Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free. Similar Homework Help Questions Due to erratic sales of its sole product-a high-capacity battery for laptop computers—PEM, Inc., has been... 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 (13,200 units x $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 396,000 198,000 198,000 220,500 $ (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... Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been... 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 (13,300 units * $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 399,000 239,400 159,600 177,600 $ (18,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes... Due to erratic sales of its sole product-a high-capacity battery for laptop computers–PEM, Inc., has been... 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 (13,200 units * $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 396,000 237,600 158, 400 176,400 $ (18,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president... Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been... 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 (12,900 units × $20 per unit) $ 258,000 Variable expenses 129,000 Contribution margin 129,000 Fixed expenses 144,000 Net operating loss $ (15,000 ) Required: 1. Compute the company’s CM ratio and its break-even point in unit sales and dollar sales. 2. The... Help solving Due to erratic sales of its sole product-a high-capacity battery for laptop computers—PEM, Inc.,... Help solving 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: $252,000 Sales (12,600 units X $20 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss 151,200 100,800 112,800 $(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... Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been... 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 (13,200 units * $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 396,000 198,000 198,000 229,500 $ (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... Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been... 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. 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