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Problem 5-22 (Algo) CVP Applications; Contribution Margin Ratio; Break-Even Analysis; Cost Structure [LO5-1, LO5-2, LO5-4, LO5-6, LO5-7] PEM, incorporated, is expenlencing financial difficulty due to erratic solos of its ony product, a high-capscity battery for laptop computes. The company's contribution format income statement for the most recent month is given below Required: 1. Compute the company CM rato and is break-even point in unit sales and dellar sales 2 The president beleves a $6,800 increase in the monthly advertising budget, combinod with an intensulfed effort by the sales staff, Wil increase unit sales and the total salos by $83,000 por month. if the presidem is right, what wil be the inciease (decreate) in the company is monthly net operating income? 3. Aeter to the original data, The sales manager ks cocrinced that a 108 reduction in the selling price, conbined with an increase of $36,000 in the monthly sdvertising budget, will double vait sales. If the sales manager is right, what wat be the revised net operating income floss)? 4. Aofer to the onginal data. The Marketing Deportment thinks that a fancy new package for the luptop computet battery would orow Sales. The new packoge would increase variable costs by $050 per unit. Assuming no other changes, how many units would have to be sold each month to atiain a target proft of $4,200 ? 5. Aefer to the original data. By automating, the company could reduce variable expenses by 53 pec unit Howevet, fued expenses would increase by 554,000 each month. a. Compute the nOw CM ratio and the now breokeven point in unt sales and dollar salek. b. Assume the company expects to sel 20,000 unts nesis month Prepace two contribution format income statemects, one ossuming operations oce not automated and one assuming they are. (Show data on o pectunit and percentsge basla, as well as in tolat, for eoch aliemative) c. Would you recommend the conpany aviomble its operibions (Astuming that the company expects to sell 20,600 urits)

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