Analysis; Cost Structure $[$LO$5-1,$ LO$5-2,$ LO$5-4,$ LO$5-6,$ LO$5-7]$

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:

Required:

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

The president believes a $$6,200$ increase in the monthly advertising budget, combined with an intensified

effort by the sales staff, will increase unit sales and the total sales by $$85,000$ 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 $$38,000$ 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 $$0\mathrm{.}70$ per unit.

Assuming no other changes, how many units would have to be sold each month to attain a target profit of

$$4,900?$

Refer to the original data. By automating, the company could reduce variable expenses by $$3$ per unit.

However, fixed expenses would increase by $$56,000$ each month.

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

b$.$ Assume the company expects to sell $20,800$ 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.$)$

c$.$ Would you recommend the company automate its operations $($Assuming that the company expects to

sell $20,800$ units$)?$