PEM Incorporates is experiencing financial difficulty due to erratic sales of its only product, a high-capacity battery for laptop computers. The companys contribution format income statement for the most recent month is given below:

Sales (12,900 units x $20 per unit) $258,000

Variable expenses 129,000

Contribution margin 129,000

Fixed expenses 144,000

Net operating loss $ (15,000)

Required:

1. Compute the Companys CM ration and its breakeven point in unit sales and dollar sales.
2. The president believes a 6,700 increase in monthly advertising budget combined with an intensified effort by the sales staff will increase unit sales and the total sales by $88,00 per month. If the president is right, what will be the increase (decrease) in the companys 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 $33,00 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 date. The marketing department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase variable cost by .040 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $2,400?
5. Refer to the original data. By automating the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $53,000 per month.
6. Compute the new CM ration and the new break even point in unit sales and dollar sales.
7. Assume the company expects to sell 20,600 units next month. Prepare two contribution format income statements, one assuming operations are not automated and one assuming they are. (Show date on a per unit and percentage basis as well as in total, for reach alternative.)
8. Would you recommend the company automate its operations (Assuming the company expects to sell 20,600 units)?