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 (12,700 units $20 per unit)	$	254,000
Variable expenses		152,400
Contribution margin		101,600
Fixed expenses		113,600
Net operating loss	$	(12,000)

Required:

5.	Refer to the original data. By automating, the company could reduce variable expenses in half. However, fixed expenses would increase by $60,000 each month.

a.	Compute the new CM ratio and the new break-even point in both unit sales and dollar sales. (Use the CM ratio to calculate your break-even point in dollars. Do not round your intermediate calculations. Round up your final break even answers to the nearest whole number.)

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.

c.

Would you recommend that the company automate its operations?

	Yes
	No