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Due to erratic sales of its sole producta high-capacity battery for laptop computersPEM, Inc., has been experiencing financial difficulty for some time. The companys contribution format income statement for the most recent month is given below:

Sales (13,300 units $20 per unit)	$	266,000
Variable expenses		159,600
Contribution margin		106,400
Fixed expenses		118,400
Net operating loss	$	(12,000	)

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 $0.50 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,400?

5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $52,000 each month.

b. Assume that the company expects to sell 20,100 units next month. Prepare two contribution format income statements, one

	Not automated			Automated
	Total	Per unit	Percentage	Total	Per unit	Percentage
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income

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