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

Sales (13,000 units $40 per unit)

$

520,000

Variable expenses

260,000

Contribution margin

260,000

Fixed expenses

290,000

Net operating loss

$

(30,000)

2.

The president believes that a $6,800 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $89,000 increase in monthly sales. If the president is right, what will be the effect on the companys monthly net operating income or loss? (Use the incremental approach in preparing your answer.)

3.	Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $34,000 in the monthly advertising budget, will double unit sales. What will the new contribution format income statement look like if these changes are adopted?