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 (12,800 units $30 per unit)	$ 384,000
Variable expenses	192,000
Contribution margin	192,000
Fixed expenses	214,500
Net operating loss	$ (22,500)

Required:

1. Compute the companys CM ratio and its break-even point in unit sales and dollar sales.

2. The president believes that a $6,500 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $86,000 per month. If the president is right, what will be the increase (decrease) in the companys monthly net operating income?

3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $36,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)?