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 $20 per unit) $ 260,000 Variable expenses 130,000 Contribution margin 130,000 Fixed expenses 145,000 Net operating loss $ (15,000) Required: Refer to the original data. By automating, the company could reduce variable expenses in half. However, fixed expenses would increase by $53,000 each month.

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

Assume that the company expects to sell 20,700 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are.