Problem 5 22 (Static) CVP Applications Contribution Margin Ratio Break Even Analysis Cost Structure LO5 1, LO5 3, LO5 4, LO5 5, LO5 6 Due to erratic sales of its sole producta high capacity battery for laptop computersPEM, Incorporated, has been experiencing financial difficulty for some time The companys contribution format income statement for the most recent month is given below Sales (19,500 units $30 per unit) $ 585,000 Variable expenses 409,500 Contribution margin 175,500 Fixed expenses 180,000 Net operating loss $ (4,500) Required 1 Compute the companys CM ratio and its break even point in unit sales and dollar sales 2 The president believes that a $16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $80,000 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 $60,000 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 data The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales The new package would increase packaging costs by 75 cents per unit Assuming no other changes, how many units would have to be sold each month to attain a target profit of $9,750 5 Refer to the original data By automating, the company could reduce variable expenses by $3 per unit However, fixed expenses would increase by $72,000 each month a Compute the new CM ratio and the new break even point in unit sales and dollar sales b Assume that the company expects to sell 26,000 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 ) c Would you recommend that the company automate its operations (Assuming that the company expects to sell 26,000 units) Problem 5 22 (Static) CVP Applications Contribution Margin Ratio Break Even Analysis Cost Structure LO5 1, LO5 3, L05 4, LO5 5, L05 6) Due to erratic sales of its sole product a high capacity battery for laptop computersPEM, Incorporated, has been experiencing financial difficulty for some time The company's contribution format Income statement for the most recent month is given below Sales (19,5ee units $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 585,000 409,500 175, 5ee 180, eee $ (4,589) Required 1 Compute the company's CM ratio and its break even point in unit sales and dollar sales 2 The president belleves that a $16,000 Increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $80,000 per month If the president is right, what will be the increase (decrease) in the company's 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 $60,000 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 data The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales The new package would increase packaging costs by 75 cents per unit Assuming no other changes, how many units would have to be sold each month to attain a target profit of $9,750 5 Refer to the original data By automating, the company could reduce variable expenses by $3 per unit However, fixed expenses would increase by $72,000 each month a Compute the new CM ratio and the new break even point in unit sales and dollar sales b Assume that the company expects to sell 26,000 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 ) c Would you recommend that the company automate its operations (Assuming that the company expects to sell 26,000 units)

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Problem 5-22 (Static) CVP Applications; Contribution Margin Ratio; Break-Even Analysis; Cost Structure [LO5-1, LO5-3, LO5-4, LO5-5, LO5-6] Due to erratic sales of its sole producta

Problem 5-22 (Static) CVP Applications; Contribution Margin Ratio; Break-Even Analysis; Cost Structure [LO5-1, LO5-3, LO5-4, LO5-5, LO5-6]

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

Sales (19,500 units $30 per unit)	$ 585,000
Variable expenses	409,500
Contribution margin	175,500
Fixed expenses	180,000
Net operating loss	$ (4,500)

Required:

1. Compute the companys CM ratio and its break-even point in unit sales and dollar sales.

2. The president believes that a $16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $80,000 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 $60,000 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 data. The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase packaging costs by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $9,750?

5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $72,000 each month.

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

b. Assume that the company expects to sell 26,000 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.)

c. Would you recommend that the company automate its operations (Assuming that the company expects to sell 26,000 units)? image text in transcribed

Problem 5-22 (Static) CVP Applications; Contribution Margin Ratio; Break-Even Analysis; Cost Structure [LO5-1, LO5-3, L05-4, LO5-5, L05-6) Due to erratic sales of its sole product-a high-capacity battery for laptop computersPEM, Incorporated, has been experiencing financial difficulty for some time. The company's contribution format Income statement for the most recent month is given below: Sales (19,5ee units * $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 585,000 409,500 175, 5ee 180, eee $ (4,589) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2 The president belleves that a $16,000 Increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $80,000 per month. If the president is right, what will be the increase (decrease) in the company's 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 $60,000 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 data. The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase packaging costs by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $9,750? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $72,000 each month. a. Compute the new CM ratio and the new break-even point in unit sales and dollar sales. b. Assume that the company expects to sell 26,000 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.) c. Would you recommend that the company automate its operations (Assuming that the company expects to sell 26,000 units)