GHA 4 (PS-22) C O ezto.mheducation.com/hm.tpx?-0.9599329203195939 1531225388551

Question

GHA 4 (PS-22) C O ezto.mheducation.com/hm.tpx?-0.9599329203195939 1531225388551 Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been experiencing difficulty for some time. The company's contribution format income statement for the most recent month is given below Sales (13,100 units × S20 per unit) Variable expenses $ 262,000 157,200 Contribution margin Fixed expenses 104,800 16,800 Net operating loss s (12,000) Required: 1. Compute the company's CM ratio and its break-even point in both unit sales and dollar sales CM ratio Break-even point in units dollars n point in 2. The president believes that a $6.200 increase in the monthly advertising budgot, combined with an intensified effort by the sales staff, will rosuit in an $80,000 increase in monthly salos. If the president is right, what will be the effect on the company's monthly net operating income or loss? (Use the Type here to search hp

Explanation / Answer

1)

**Contribution per unit = 20*.40 = 8

2)

Increase in contribution = Increase in sales *CM ratio

             = 80000*.40

              = 32000

Increase in operating profit /(loss) =Increase in contribution -fixed cost

            = 32000- 6200

             = $ 25800

3)New selling price = 20[1-.10] = 18

unit sales = 13100*2 = 26200

Fixed cost= 116800+39000= 155800

variable cost per unit = 157200/13100=12

4)

Variable cost(new) =12+.80= 12.8

contribution per unit = 20-12.8= 7.2

Target unit sales =[fixed cost+target profit ]/contribution per unit

       =[116800+4500]/7.2

     = 121300/7.2

     = 16847.22 [rounded to 16848]

5a)Selling price = 20

Variable cost per unit = 12*6/12 = 6

contribution = 20-6=14

fixed cost = 116800+56000=172800

CM ratio = 14/20= .70 or 70%

BEP(units) =172800/14 = 12343 units

BEP($) = 172800/.70 =$ 246857

b)

c)since operating income has increased under automation process ,process should be automated

Yes

contribution margin ratio contribution /sales 104800/262000=.40 or 40% Break even point (units) Fixed cost /contribution per unit 116800/8= 14600 units BEP($) = Fixed cost /CM ratio 116800/.40 =$ 292000

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