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Due to erratic sales of its sole producta high-capacity battery for laptop computersPEM, Inc., has been experiencing difficulty for some time. The companys contribution format income statement for the most recent month is given below:

Sales (13,500 units $20 per unit)	$	270,000
Variable expenses		162,000
Contribution margin		108,000
Fixed expenses		120,000
Net operating loss	$	(12,000)

2.	The president believes that a $6,100 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $89,000 increase in monthly sales. If the president is right, what will be the effect on the companys monthly net operating income or loss? (Use the incremental approach in preparing your answer.)

	Increases by __________

5.	Refer to the original data. By automating, the company could reduce variable expenses in half. However, fixed expenses would increase by $57,000 each month.

a.	Compute the new CM ratio and the new break-even point in both unit sales and dollar sales. (Use the CM ratio to calculate your break-even point in dollars. Do not round your intermediate calculations. Round up your final break even answers to the nearest whole number.)
	CM ratio 70 % Break-even point in units 12,643 Break-even point in dollars _______

B) Assume that the company expects to sell 20,100 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are.

PEM, Inc. Contribution Income Statement Not Automated Automated Total Per Unit % Total Per Unit % Sales $402,000 % % Variable expenses 241,200 % % Contribution margin 160,800 % % Fixed expenses 120,000 Net operating income $40,800

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