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Due to erratic sales of its sole product?a high-capacity batteryfor laptop computers?PEM, Inc., has been experiencing difficultyfor some time. The company's contribution format income statementfor the most recent month is given below:

Sales (13,200 units at $30 per unit)	$396,000
Variable expenses	198,000
Contribution margin	198,000
Fixed expenses	220,500
Net operating loss	$(22,500)

Requirement 1:

Compute the company's CM ratio and its break-even point in bothunits and dollars.

CM ratio	%
Break-even point in units	units
Break-even point in dollars	$

Requirement 2:

The president believes that a $6500 increase in the monthlyadvertising budget, combined with an intensified effort by thesales staff, will result in an $90,000 increase in monthly sales.If the president is right, by how much will the company's netoperating income increase or decrease? (Use the incrementalapproach in preparing your answer.)

Net operating income

$

(Click to select)increasedecrease

Requirement 3:

Refer to the original data. The sales manager is convinced thata 10% reduction in the selling price, combined with an increase of$34,000 in the monthly advertising budget, will cause unit sales todouble. What will the new contribution format income statement looklike if these changes are adopted?(Net loss should beindicated by a minus sign. Omit the "$" sign in yourresponse.)

Sales	$
Variable expenses
Contribution margin
Fixed expenses
(Click to select)Net operating lossNet operating income	$

Requirement 4:

Refer to the original data. The Marketing Department thinks thata fancy new package for the laptop computer battery would helpsales. The new package would increase packaging costs by 80 centsper unit. Assuming no other changes, how many units would have tobe sold each month to earn a profit of $4500?(Round unitsto nearest whole unit.)

Sales

units

Requirement 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 $60,000 each month.

(a)	Compute the new CM ratio and the new break-even point in bothunits and dollars.(Round units to nearest whole unit, CMratio to nearest whole percent. Omit the "%" and "$" signs in yourresponse.)

CM ratio	%
Break-even point in units	units
Break-even point in dollars	$

(b)

Assume that the company expects to sell 20,000 units next month.Prepare two contribution format income statements, one assumingthat 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.)(Omit the "$" and "%" signs in yourresponse.)

	Not Automated			Automated
	Total	Per Unit	%	Total	Per Unit	%
Sales (26,000 units)	$	$		$	$
Variable expenses
Contribution margin		$			$
Fixed expenses
Net operating income	$			$