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Problem #2-CM Ratio & Effect of Changes Due to erratic sales of its sole product- a high-capacity battery for laptop computers- PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (13,000 units x $30 per unit) $390,000 Variable expenses $195,000 Contribution margin $195,000 Fixed expenses $217,500 Net operating loss ($22,500) Requirements 1. Compute the company's unit CM ratio to find its break-even point in unit sales. 2. Compute the company's CM ratio to find its break-even point in sales dollars. 3. The president believes that a $6,800 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $82,000 increase in monthly sales. If the president is right, what will be the increase (decrease) in the company's monthly net operating income? 4. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $31,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)? 5. The marketing department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase packaging costs by $.70 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,500

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