Problem 6-22 (Algo) CVP Applications; Contribution Margin Ratio; Break-Even Analysis; Cost Structure [LO6-1, LO6-3, L06-4, LO6-5, LO6-6) 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: Sales (12,600 units $30 per unit) $ 378,000 Variable expenses 226,800 Contribution margin Fixed expenses Net operating loss $ (18,000) 151,200 169,200 Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6,600 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $88,000 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 $31,000 in the monthly advertising budget will double unit soles. 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 $0.70 per unit. Assuming no other changes, how many units would have 5. 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 20.400 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 20,400 units)? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Rega Reg 4 Reg 5A Reg 58 Reg 5C Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 58 Reg 5C 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. Compute the new CM ratio and the new break-even point in unit sales and dollar sales. (Do not round Intermediate calculations. Round "CM ratio" to the nearest whole percentage (1.e., 0.234 should be entered as "23") and other answers to the nearest whole number.) Show less CM ratio % Break-even point in unit sales Break-even point in dollar sales Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 5A Reg 5B Reg 5C 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. Assume that the company expects to sell 20,400 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.) (Do not round your intermediate calculations. Round your percentage answers to the nearest whole number.) Show less PEM, Incorporated Contribution Income Statement Not Automated Total Per Unit % Automated Per Unit Total % 0 $ 0 0 0 $ 0 0 $ 0 $ 0 Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Reg 3 Reg 4 Req 5A Reg 5B Req 5C 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. Would you recommend that the company automate its operations (Assuming that the company expects to sell 20,400 units)? 10res No
