Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (13,300 units x $20 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 266. eee 133,888 133, Bee 148,000 $ (15,800) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6.100 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $84.000 increase in monthly sales. If the president is right, what will be the increase (decrease) in the company's 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 $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)? 4. 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 packaging costs by $0.70 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,400? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $55.000 each month. a. Compute the new CM ratio and the new break-even point in unit sales and dollar sales. b. Assume that the company expects to sell 21.000 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 21.000)? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 2 Reg 3 Reg3 Reg 4 Reg4 Req 5A Reg 5A Req 5B Reg Se Regsc Compute the company's CM ratio and its break-even point in unit sales and dollar sales. (Do not round intermediate calculations. Round "CM ratio to the nearest whole percentage (i.e., 0.234 should be entered as "23").) CM ratio Break-even point in unit sales Break-even point in dollar sales Req1 Req 2 > Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 1,920,000 960,000 960,000 180,000 780,000 Required: Answer each question Independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point in dollar sales. 3. If this year's sales increase by $56,000 and fixed expenses do not change, how much will net operating income increase? 4-a. What is the degree of operating leverage based on last year's sales? 4-6. Assume the president expects this year's sales to increase by 14%. Using the degree of operating leverage from last year, what percentage Increase in net operating income will the company realize this year? 5. The sales manager is convinced that a 14% reduction in the selling price, combined with a $79,000 Increase in advertising, would increase this year's unit sales by 25%. a. If the sales manager is right, what would be this year's net operating income if his ideas are Implemented? b. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year? 6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.90 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much could the president Increase this year's advertising expense and still earn the same $780,000 net operating Income as last year? Complete this question by entering your answers in the tabs below. Req1 Req2 Req3 Reg 4A Reg 4A Reg 48 Reg 5A Reg 58 Reg 6 What is the product's CM ratio? CM ratio % Reg 1 Req2 >
