1 Due to erratic sales of its sole product-a high-capacity battery for laptop co
ID: 2338137 • Letter: 1
Question
1 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 (13,509 units x $20 per unit) Variable Fixed Net operating loss 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 int staff vill result in an s82000 increase in monthly sales.if the president is right what wl It in an $82.000 increase in monthly sales. If the president is right, what wil be the increase (decrease) in the company's monthly net operating income? 3. Refer to the original data. The sales manager is convincnght what willbe the revised net operating S39000 in the monthly income (loss)? 4. Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop sales. The new package would increase packaging costs by 06 have to be sold each month to attain a target profit of $4100? 5. Refer to the original data. By automating, the company couid reduce variable expenses by would increase by $56,000 each month. a. Compute the new CM ratio and the new break-even point in unit sales and doltar sales that a 10% reduction in the seling price. combined with an increase of advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating 0 cents per unit. Assuming no other changes, how many units would 53 per unit However, fixed expenses b. Assume that the company expects to sell 20.300 units next month. Prepare two contibution format ncome statements, one pe here to searchExplanation / Answer
1. Contribution ratio = Contribution/Sales * 100
= 135,000/270,000 * 100
= 50%.
Break even point (Dollar Sales) = Fixed cost/CM ratio
= 150,000/50%
= $300,000
Bresk even point (Unit sales) = Fixed Cost/Contri per unit
= 150,000/10 (135,000/13,500)
= 15,000 units
2. Increase/(decrease) in net operating income
Sales (A) = 352,000 (270,000 + 82,000)
Contribution Margin = $176,000 (352,000 * 0.5)
Fixed Expense = 156,300 (150,000 + 6,300)
Net Operating Profit = 19,700 (176,000 - 156,300)
There will be an increase of $34,700 than current net loss.
3. Net operating profit if the sales price is down by 10%.
Sales = 486,000 (27,000 * 18)
Contribution margin = 243,000 (486,000 * 0.5)
Fixed Expenses = 189,000 (150,000 + 39,000)
Net operating profit = 243,000 - 189,000
= $54,000.
4. How many units to be sold to attain a profit of $4,100?
Contribution margin = Profit + Fixed Expenses
= 4,100 + 150,000
= 154,100
Contribution margin is 50%.
So, variable cost will also be $154,100
Sales = VC + contribution
= 154,100 + 154,100
= 308,200
Units to be sold = 308,200/20
= 15,410 units.
5. a. Sales = 270.000 (13,500 * 20)
Variable Expenses = 94,500
Contribution Margin = 270,000 - 94,500
= 175,500
CM ration = 175,500/270,000
= 65%
Break Even point (in dollars) = New Fixed cost/Contri margin
= 206,000/65%
= $316,923 approx.
Break Even point (in unit sales) = 206,000/13
= 15,846 units approx.
b. Contribution Income statement
= Sales = 406,000 (20,300 * 20)
Variable Expense = 142,100 (20,300 * 7)
Contribution Margin = 263,900
Fixed Expense = 206,000 (150,000 + 56,000)
Net operating profit = 57,900
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