Problem $6-22($Algo$)$ CVP Applications; Contribution Margin Ratio; Break$-$Even Analysis; Cost Structure

$[$LO$6-1,$ LO$6-3,$ LO$6-4,$ LO$6-5,$ LO$6-6]$

Due to erratic sales of its sole product$-$a high$-$capacity battery for laptop computers$-$PEM, Incorporated, has been experiencing

financial difficulty for some time. The company's contribution format income statement for the most recent month is given below:

Required:

Compute the company's CM ratio and its break$-$even point in unit sales and dollar sales.

The president believes that a $$6,500$ increase in the monthly advertising budget, combined with an intensified effort by the sales

staff, will increase unit sales and the total sales by $$87,000$ per month. If the president is right, what will be the increase $($decrease$)$ in

the company's monthly net operating income?

Refer to the original data. The sales manager is convinced that a $10\%$ reduction in the selling price, combined with an increase of

$$39,000$ in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating

income $($loss$)?$

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 $$0\mathrm{.}50$ per unit. Assuming no other changes, how many units would have

to be sold each month to attain a target profit of $$4,900?$

Refer to the original data. By automating, the company could reduce variable expenses by $$3$ per unit. However, fixed expenses

would increase by $$55,000$ 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 $21,000$ 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 $21,000$ units$)?$