Due to erratic sales of its product--a high-capacity battery for laptop computer

Question

Due to erratic sales of its 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 along with other information. PEM, INC. Information   from recent month's income statement: Sales $585,000   Units sold 19,500   Sales price per unit $30 Less variable expenses 409,500 Contribution margin 175,500 Less fixed expenses 180,000 Net operating loss ($4,500) Information for Part 2:   Increase in monthly advertising budget $16,000   Increase in monthly sales $80,000 Information for Part 3:   Reduction in selling price 10%   Increase in monthly advertising budget $60,000   Increase in monthly unit sales 100% Information for Part 4:   Increase in packaging cost per unit $0.75   Targeted profit each month $9,750 Information for Part 5:   Reduction in variable costs per unit $3   Increase in monthly fixed costs $72,000   Expected sales in units 26,000 Required: 1.  Compute the company's CM ratio and its   break-even point in both units and dollars. 2.  The president believes that a $16,000   increase in the monthly advertising budget, combined with an      intensified effort by the sales staff,   will result in an $80,000 increase in monthly sales.  If the president      is right, what will be the effect on the   company's monthly net operating income or loss? (Use the      incremental approach in preparing your   answer.)
I am having difficulty calculating the monthly net income or loss using the incremental approach.  Can you please help with my solution?
Due to erratic sales of its 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 along with other information. PEM, INC. Information   from recent month's income statement: Sales $585,000   Units sold 19,500   Sales price per unit $30 Less variable expenses 409,500 Contribution margin 175,500 Less fixed expenses 180,000 Net operating loss ($4,500) Information for Part 2:   Increase in monthly advertising budget $16,000   Increase in monthly sales $80,000 Information for Part 3:   Reduction in selling price 10%   Increase in monthly advertising budget $60,000   Increase in monthly unit sales 100% Information for Part 4:   Increase in packaging cost per unit $0.75   Targeted profit each month $9,750 Information for Part 5:   Reduction in variable costs per unit $3   Increase in monthly fixed costs $72,000   Expected sales in units 26,000 Required: 1.  Compute the company's CM ratio and its   break-even point in both units and dollars. 2.  The president believes that a $16,000   increase in the monthly advertising budget, combined with an      intensified effort by the sales staff,   will result in an $80,000 increase in monthly sales.  If the president      is right, what will be the effect on the   company's monthly net operating income or loss? (Use the      incremental approach in preparing your   answer.)
I am having difficulty calculating the monthly net income or loss using the incremental approach.  Can you please help with my solution?

Explanation / Answer

The new CM ratio would be:

Per Unit Percent of Sales

Sales ............................................... $30 100%

Less variable expenses................... 18 60

Contribution margin......................... $12 40%

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.