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#### Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc

###### Accounting

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 (13,400 units * \$30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss \$402,000 201,000 201,000 223,500 \$(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 that a \$6,100 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 \$31.000 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 \$0.50 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of \$4,500? 5. Refer to the original data. By automating, the company could reduce variable expenses by \$3 per unit. However, fixed expenses would increase by \$55,000 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)? Req1 Reg 2 Reg Reg 4 ReqSA Reg 58 Ra SC Compute the company's CM ratio and its break-even point in unit sales and dollar sales. (Do not round intermediate calculations. Round "CM ratio to the nearest whole percentage (e., 0.234 should be entered as "23").) 50 CM Break-even point in units Break-even point in dollar sales 14.900 447,600 5 Reg 2 > Complete this question by entering your answers in the tabs below. Ree Lea 2 Regs Reg Reg SA R 50 Resc The president believes that a \$6,100 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? (Do not round intermediate calculations.) increases \$34.900 & Req1 Req> Reg 1 Reg 2 Req3 Reg 4 Reg 5A Reg 5B Req 5C Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of \$31,000 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.) Revised net operating income (loss) Reg 2 Req 4 > Reg 1 Reg 2 Reg 3 Reg 4 Reg 5A Reg 5B Req 5C 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 \$0.50 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of \$4,500? (Do not round intermediate calculations. Round final answer to the nearest whole unit.) Show less Unit sales to attain target profit < Req3 Req5A > Req 1 Req 2 Req3 Req 4 Reg 5A Reg 5B Req 5C Refer to the original data. By automating, the company could reduce variable expenses by \$3 per unit. However, fixed expenses would increase by \$55,000 each month. Compute the new CM ratio and the new break-even point in unit sales and dollar sales. (Do not round intermediate calculations. Round "CM ratio" to the nearest whole percentage (I.e., 0.234 should be entered as "23") and other answers to the nearest whole number.) Show less CM ratio Break-even point in unit sales Break-even point in dollar sales < Reqa Req 5B > PEM, Inc. Contribution Income Statement Not Automated Total Per Unit % Automated Per Unit Total % % 0 % % % 0 % 0 \$ 0 0 \$ 0 \$ 0 \$ 0 < Req 5A Req 5C >