Question

# 2 instructions

#2 Req 1

#2 Req 2

#2 Req 3

#2 Req 4

#2 Req 5A

#2 Req 5B

2 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 (12,800 units $30 per unit) 384,000 Variable expenses Contribution margin Fixed expenses 10 230,400 153,600 171.600 Net operating loss S (18,000) eBook Print Required References 1 Compute the company's CM ratio and its break-even point in unit sales and dollar sales 2. The president believes that a $6,300 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 $39,000 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 cents per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $5,000? 5. Refer to the original data. By automating, the company could reduce variable experdses by $3 per unit. However, fixed expenses would increase by $58,000 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 20,600 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 20,60o)? 2 Complete this question by entering your answers in the tabs below. 10 Req 4 points Req 3 Req SC Req 5A Req 58 Req 1 Req 2 Compute the company's CM ratio and its break-even point in unit sales and dollar sales. (Do not round intermediate calculations.) eBook Print References CM ratio Break-even point in unit sales Break-even point in dollar sales Req2 > 2 Would you recommend that the company automate its operations (Assuming that the company e apects to sell 20.600) Complete this question by entering your answers in the tabs below. 10 points Req SA Req 58 Req sC Req 4 Req 3 Req 1 Req 2 The president believes that a $6,300 increase in the monthly advertising budget, combined with an intensified effort by the eBook 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? (Do not round intermediate calculations.) Print References Req Req 3 > 2 b. Assume that the company expects to sell 20,600 assuming that operations are not automated and one assuming that they are. (Show data on a per unit and percentage bas as in total, for each alternative.) c. Would you recommend that the company automate units next month. Prepare two contribution format income statements its operations (Assuming that the company expects to sell 20,600)? 10 Complete this question by entering your answers in the tabs below. points eBook Req 5A Req 3 Req 4 Req 58 Req 5C Req 2 Req 1 Print ed that a 10% reduction in the selling price, combined with an Refer to the original data. The sales manager is convinc References se of $39,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)? (Losses should be entered as a negative value.) net operating income (oss) Req 4 >

Answer 1

1.

CM Ratio	40	%
Break-Even Point in unit sales	14300
Break-Even Point in dollar sales	$ 429,000

Note:

Contribution of the Break-Even Point in both unit sales and dollar sales

Break-Even Point (units)= Fixed Cost/Contribution per unit

                          =$ 171,600/($ 30-$18)per unit=$171600/$12 per unit

                          =14300 units

Break-Even Point(dollars)= Break-Even Point (units)* Selling price per unit

                                             =14300 units*$ 30 per unit=$ 429,000

Calculation of CM Ratio= Contribution*100/Sales

                          =$ 153,600*100/$ 384,000 =40%

2.

Increase

By

$ 28,500

Note:

Computation of Increase in Net Income if the change is Implemented:

Change in Net Income=Change in contribution margin-Increase in advertising budget

                            =$ 87000*0.4-$ 6300=$ 28,500

Thus the change should be implemented as it results in an increase in the net income

3..

Revised Net Operating Income

$ 19,800

Note:ncome Statement after changes are adopted(Contribution format Income Statement)

Contribution format Income Statement
Sales	$ 691,200
Less: Variable Expenses	($ 460,800)
Contribution	$ 230,400
Less: Fixed Expenses	($210600)
Net Operating Income	$ 19,800

4.

Unit Sales to attain Target Profit

15491

Note:Computation of the number of units to be sold each month to earn the target profit of $ 5000

Target Profit=Unit Contribution Margin*quantity-Fixed expenses

$ 5000=$ 11.40*Quantity-$ 171600

Quantity to be sold=15491