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

Sales (13,100 units $20 per unit)	$	262,000
Variable expenses		131,000
Contribution margin		131,000
Fixed expenses		146,000
Net operating loss	$	(15,000	)

5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $51,000 each month.

a. Compute the new CM ratio and the new break-even point in unit sales and dollar sales.

CM ratio		%
Break-even point in unit sales
Break-even point in dollar sales

b. Assume that the company expects to sell 20,100 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.)

PEM, Inc.
Contribution Income Statement
	Not Automated				Automated
	Total	Per Unit	%		Total	Per Unit	%
Sales			100	%			100	%
Variable expenses				%				%
Contribution margin	0	$0	100	%	0	$0	100	%
Fixed expenses
Net operating income	$0				$0

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