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PEM, Incorporated, is experiencing financial difficulty due to erratic sales of its only product, a high$-$capacity battery for laptop computers. The company$$s contribution format income statement for the most recent month is given below:

Sales $(19,500$ units $\backslash$times $$30$ per unit$)$ $ $585,000$

Variable expenses $409,500$

Contribution margin $175,500$

Fixed expenses $180,000$

Net operating loss $ $(4,500)$

Required:

Compute the company$$s CM ratio and its break$-$even point in unit sales and dollar sales.

The president believes a $$16,000$ increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $$80,000$ per month. If the president is right, what will be the increase $($decrease$)$ in the company$$s monthly net operating income?

Refer to the original data. The sales manager is convinced that a $10\%$ reduction in the selling price, combined with an increase of $$60,000$ in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income $($loss$)?$

Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase variable costs by $75$ cents per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $$9,750?$

Refer to the original data. By automating, the company could reduce variable expenses by $$3$ per unit. However, fixed expenses would increase by $$72,000$ each month.

Compute the new CM ratio and the new break$-$even point in unit sales and dollar sales.

Assume the company expects to sell $26,000$ units next month. Prepare two contribution format income statements, one assuming operations are not automated and one assuming they are. $($Show data on a per$-$unit and percentage basis, as well as in total, for each alternative.$)$

Would you recommend that the company automate its operations $($Assuming that the company expects to sell $26,000$ units$)?$

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