Help Save & Exit Submit Check my work Due to erratic sales of its sole product-a

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Help Save & Exit Submit Check my work 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 (12,500 units × $20 per unit) Variable expenses Contribution nargin Fixed expenses s 250,000 150,000 100,000 112,000 s (12,000) Net operating loss Required 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales 2. The president believes that a $6,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff will result in an $82,000 increase in monthly sales. 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 $31,000 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 0.60 cents 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 dato. By automating, the compan would increase by $55,000 each month a. Compute the new CM ratio and the new break-even point in unit sales and doliar sales b. Assum y could reduce variable expenses by $3 per unit. However, fixed expenses e that the company expects to sell 20,800 units next month. Prepare two contribution format income statements, one t 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. lovt

Explanation / Answer

PEM INC. 1) Contribution Margin Ratio=(Contribution /Sales)*100 Contribution Margin Ratio=(100000 /250000)*100 40% Breakeven Point (Units) Fixed Cost/Contribution Margin Per Unit Contribution Margin Per Unit=($100000/12500) $               8.00 Breakeven Point (Units)=($112000/$8) 14000 Break even Point(Dollars)=(Fixed Cost/Contribution Margin Ratio) Break even point (Dollars)=($112000/40%) $ 280,000.00 2) Due to increase in Sales net operating income will be increased by Increase contribution Margin=(increase sales* contribution Margin ratio)=($82000*40%) $    32,800.00 Increase Cost of Advertisement $      6,000.00 Increase Net Income=($32800-$6000) $    26,800.00 Net Income after adopting Proposal ($26800-$12000) $    14,800.00 3) 10% Reduction in selling Price=($20-($20*10%)= $            18.00 Variable Cost Per Unit=($150000/12500) $            12.00 Sales Units=(12500)*2 25000 Sales Price=(25000*$18) $ 450,000.00 Variable Cost($25000*$12) $ 300,000.00 Contribution Margin($450000-$300000) $ 150,000.00 Less: Fixed Cost=($112000+$31000) $ 143,000.00 Net Income= $      7,000.00 4) Selling Price Per Unit 20 Variable Cost Per Unit=($12+.60) 12.6 Contribution Margin Per Unit 7.4 Breakeven Sales(Units) when target profit=$4900 (Fixed Cost+Target Profit)/Contribution Margin per unit ($120000+$4900)/7.4 16878 5) Selling Price Per Unit 20 Variable Cost Per Unit=($12-$3) 9 Contribution Margin Per Unit 11 a) Contribution Margin Ratio=($11/$20)*100 55% Fixed Cost=($112000+$55000) $        167,000 Breakeven sales(Units)=($167000/$11) $          18,556 Breakeven sales(Dollars)=($167000/55%) $        303,636 b) PEM Inc. Income Statement Not Automated Automated Total Per Unit % Total Per Unit % Sales $ 416,000.00 $    20.00 100 $ 416,000.00 $    20.00 100 Variable Cost $ 249,600.00 $    12.00 60 $ 187,200.00 $       9.00 45 Contribution Margin $ 166,400.00 $       8.00 40 $ 228,800.00 $    11.00 55 Less: Fixed Cost $ 112,000.00 $ 167,000.00 Net Income $    54,400.00 $    61,800.00 C ) Yes

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