Due to erratic sales of its product--a high-capacity battery for laptop computers--PEM Inc,, has been
experiencing difficulty for some time. The company's contribution format income statement for the most
recent month is given below along with other information.
PEM, INC.
Information from recent month's income statement:
Sales		$585,000
Units sold	19,500
Sales price per unit	$30
Less variable expenses		409,500
Contribution margin		175,500
Less fixed expenses		180,000
Net operating loss		($4,500)
Information for Part 2:
Increase in monthly advertising budget		$16,000
Increase in monthly sales		$80,000
Information for Part 3:
Reduction in selling price		10%
Increase in monthly advertising budget		$60,000
Increase in monthly unit sales		100%
Information for Part 4:
Increase in packaging cost per unit		$0.75
Targeted profit each month		$9,750
Information for Part 5:
Reduction in variable costs per unit		$3
Increase in monthly fixed costs		$72,000
Expected sales in units		26,000
Required:
1. Compute the company's CM ratio and its break-even point in both units and dollars.
2. The president believes that a $16,000 increase in the monthly advertising budget, combined with an
intensified effort by the sales staff, will result in an $80,000 increase in monthly sales. If the president
is right, what will be the effect on the company's monthly net operating income or loss? (Use the
incremental approach in preparing your answer.)
I am having difficulty calculating the monthly net income or loss using the incremental approach. Can you please help with my solution?