Due to erratic sales of its sole product- a high-capacity battery for laptop computers- Parma...
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Accounting
Due to erratic sales of its sole product- a high-capacity battery for laptop computers- Parma Ltd. has been experiencing difficulty for some time. The company income statement for the most recent month is given below:
Sales (19500 units$30) $585 000
Less variable expenses 409 500
Contribution margin.. 175 500
Less fixed expenses. 180 000
Net loss (4 500)
5. Refer to the original data. By automating certain operations, the company could reduce variable costs by $3 per unit. However, fixed costs would increase by $72 000 each month.
a. Compute the CMR and the new breakeven point in both units and dollar sales
b. Assume that the company expects to sell 26 000 units next month. Prepare two income statements, one assuming that 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.)
c. Would you recommend that the company automate its operation? Explain your answer.
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