Due to erratic sales of its sole product—a high-capacity batteryfor laptop computers—PEM, Inc., has...

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Accounting

Due to erratic sales of its sole product—a high-capacity batteryfor laptop computers—PEM, Inc., has been experiencing financialdifficulty for some time. The company’s contribution format incomestatement for the most recent month is given below:
Sales (12,500 units × $20 perunit)      $ 250,000
Variableexpenses                               125,000
Contributionmargin                             125,000
Fixedexpenses                                  140,000
Net operatingloss                             $ (15,000 )
Required:
1. Compute the company’s CM ratio and its break-even point inunit sales and dollar sales.
2. The president believes that a $6,600 increase in the monthlyadvertising budget, combined with an intensified effort by thesales staff, will result in an $87,000 increase in monthly sales.If the president is right, what will be the increase (decrease) inthe company’s monthly net operating income?
3. Refer to the original data. The sales manager is convincedthat a 10% reduction in the selling price, combined with anincrease of $38,000 in the monthly advertising budget, will doubleunit sales. If the sales manager is right, what will be the revisednet operating income (loss)?
4. Refer to the original data. The Marketing Department thinksthat a fancy new package for the laptop computer battery would growsales. The new package would increase packaging costs by 0.50 centsper unit. Assuming no other changes, how many units would have tobe sold each month to attain a target profit of $4,600?
5. Refer to the original data. By automating, the company couldreduce variable expenses by $3 per unit. However, fixed expenseswould increase by $57,000 each month.
a. Compute the new CM ratio and the new break-even point in unitsales and dollar sales.
b. Assume that the company expects to sell 20,000 units nextmonth. Prepare two contribution format income statements, oneassuming that operations are not automated and one assuming thatthey are. (Show data on a per unit and percentage basis, as well asin total, for each alternative.)
c. Would you recommend that the company automate its operations(Assuming that the company expects to sell 20,000)?

Answer & Explanation Solved by verified expert

3.6 Ratings (347 Votes)

Answer By using given data we have to compute the following conditions Sl no Data Formula Calculations Result 1 CM ratio Contribution sales100 125000 250000100 0510050 50 BEP in units Total fixed cost Contribution margin per unit 140000 1014000 14000 BEP in dollars See Answer

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In: AccountingDue to erratic sales of its sole product—a high-capacity batteryfor laptop computers—PEM, Inc., has been...Due to erratic sales of its sole product—a high-capacity batteryfor laptop computers—PEM, Inc., has been experiencing financialdifficulty for some time. The company’s contribution format incomestatement for the most recent month is given below:Sales (12,500 units × $20 perunit) $ 250,000Variableexpenses 125,000Contributionmargin 125,000Fixedexpenses 140,000Net operatingloss $ (15,000 )Required:1. Compute the company’s CM ratio and its break-even point inunit sales and dollar sales.2. The president believes that a $6,600 increase in the monthlyadvertising budget, combined with an intensified effort by thesales staff, will result in an $87,000 increase in monthly sales.If the president is right, what will be the increase (decrease) inthe company’s monthly net operating income?3. Refer to the original data. The sales manager is convincedthat a 10% reduction in the selling price, combined with anincrease of $38,000 in the monthly advertising budget, will doubleunit sales. If the sales manager is right, what will be the revisednet operating income (loss)?4. Refer to the original data. The Marketing Department thinksthat a fancy new package for the laptop computer battery would growsales. The new package would increase packaging costs by 0.50 centsper unit. Assuming no other changes, how many units would have tobe sold each month to attain a target profit of $4,600?5. Refer to the original data. By automating, the company couldreduce variable expenses by $3 per unit. However, fixed expenseswould increase by $57,000 each month.a. Compute the new CM ratio and the new break-even point in unitsales and dollar sales.b. Assume that the company expects to sell 20,000 units nextmonth. Prepare two contribution format income statements, oneassuming that operations are not automated and one assuming thatthey are. (Show data on a per unit and percentage basis, as well asin total, for each alternative.)c. Would you recommend that the company automate its operations(Assuming that the company expects to sell 20,000)?