Due to erratic sales of its sole producta high-capacity battery for laptop computersPEM, Incorporated, has been experiencing financial difficulty for some time. The companys contribution format income statement for the most recent month is given below:

Sales (13,400 units $20 per unit) $ 268,000

Variable expenses 160,800

Contribution margin 107,200

Fixed expenses 119,200

Net operating loss $ (12,000)

5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $51,000 each month.

b. Assume that the company expects to sell 20,500 units next month. Prepare two contribution format income statements, one assuming that 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.)

c. Would you recommend that the company automate its operations (Assuming that the company expects to sell 20,500 units)?