Question

Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc, has been difficulty for some time. The company's contribution format income statement experiencing for the most recent month is given below financial Sales (13,1ee units $2e per$262,eee unit) Variable expenses Contribution margin Fixed expenses Net operating loss 131,800 131,88 146,800 s(15,ee0)

Answer 1

1. CM Ratio 4. Calculation of Number of Units 5(b). Income Statement With Automation Without Automation -Total Contribution Margin/Total Sales -131000/ 262000 Target Profit 4,600.00 Sales Amount (20,900 20) 1,46,000.00 s: Variable Expenses 4,18,000.00 4,18,000.00 2,09,000.00 Add: Fixed Expenses Contribution Required Number of Units Required 1,46,300.00 50% 1,50,600.00 Conntribution 2,71,700.00 1,99,000.00 2,09,000.00 1,46,000.00 2. Net Operating Income Less: Fixed Expenses Operating Income 5(c). Decision 15,853.00 Increase in Sales Less: Contribution (50%) Less: Advertisement (Contribution/ Revised Contribution per Unit) 81,000.00 40,500.00 6,900.00 72,700.00 63,000.00 5(a). New CM Ratio -Total Contribution Margin/Total Sales Increase in net operating Income 33,600.00 (13100*7)/ 262000 Company should automate it's operations as it is resuting in more income at given units of sales :35% 3. Revised Net Operating Income Revised Sales (13100*2*(20* 90%) Variable Expenses (13100 2 10) 4,71,600.00 2,62,000.00 Break Even Point Revised Fixed Costs 1,99,000.00 Contribution Margin Less: Fixed Expenses Less: Increased Advertisement Expenses 2,09,600.00 1,46,000.00 36,000.00 Contribution Per Unit Number of Units Required 13.00 15,308.00 Sales Required for Break Even 3,06,160.00 Net Operating Income 27,600.00

Formula Sheets

1. CM Ratio 4. Calculation of Number of Units = Total Contribution Margin / Total sales -131000/ 262000 Target Profit Add: Fixed Expenses 4 4600 146000 50% Contribution Required -SUM(F4:F6) 2. Net Operating Income -ROUNDUP(F7/(10-0.5),0) Number of Units Required (Contribution/ Revised Contribution per Unit) Increase in Sales Less: Contribution (50%) Less: Advertisement 81000 -C10*0.5 6900 5(a). New CM Ratio -Total Contribution Margin/Total Sales - (13100*7)/ 262000 :35% 12 Increase in net operating Income -C10-C11-C12 3. Revised Net Operating Income Revised Sales (13100*2*(20* 90%) Variable Expenses (13100*2*10) 16 -13100*2*18 -13100*2 10 Break Even Point Revised Fixed Costs 18 19 20 21 -146000+53000 Contribution Margin Less: Fixed Expenses Less: Increased Advertisement Expenses Contribution Per Unit -C17-C18 146000 36000 13 -ROUNDUP(F18/F20,0) Number of Units Required 23 Sales Required for Break Even -F21*20 Net Operating Income -C20-C21-C22 25

5(b). Income Statement With Automation Without Automation Sales Amount (20,900 20) Less: Variable Expenses 20900 20 20900 7 20900 20 20900*10 Conntribution =14-15 J4-J5 146000 Less: Fixed Expenses Operating Income 5(c). Decision Company should automate it's operations as it is resuting in more 199000 -17-18 17-18 income at given units of sales.