60.1K

Verified Solution

Link Copied!

Due to erratic sales of its sole product$-$a high$-$capacity battery for laptop computers$-$PEM, Incorporated, 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 $$20$ per unit$)$Variable expensesContribution marginFixed expensesNet operating loss$ $264,000132,000132,000147,000$$ $(15,000)$Required:$1.$ Compute the company's CM ratio and its break$-$even point in unit sales and dollar sales$\mathrm{.}2.$ The president believes that a $$6,400$ increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $$89,000$ per month. 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 $$37,000$ in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operatingIncome $($loss$)?4.$ Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would Increase packaging costs by $$0\mathrm{.}50$ per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $$4,900?5.$ Refer to the original data. By automating, the company could reduce variable expenses by $$3$ per unit. However, fixed expenses would increase by $$56,000$ 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 $20,600$ units$)?$

Answer & Explanation Solved by verified expert

See Answer