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

Sales (13,400 units at $40 per unit)

$ 536,000

Variable expenses

268,000

Contribution margin

268,000

Fixed expenses

298,000

Net operating loss

$

(30,000)

Requirement 1:

Refer to the original data. By automating, the company could reduce variable expenses in half. However, fixed expenses would increase by $50,000 each month.

(a)	Compute the new CM ratio and the new break-even point in both units and dollars.(Round units to nearest whole unit, CM ratio to nearest whole percent. Omit the "%" and "$" signs in your response.)

CM ratio	%
Break-even point in units	units
Break-even point in dollars	$

(b)	Assume that the company expects to sell 20,900 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are.

	Not Automated			Automated
	Total	Per Unit	%	Total	Per Unit	%
Sales (20,900 units)	$	$		$	$
Variable expenses
Contribution margin		$			$
Fixed expenses
Net operating income	$			$