Question

Due to erratic sales of its sole product-a high-capacity battery for laptop computers--PEM, Inc., has been experiencing financial difficulty for some time. The company's contribution format income statement for the most recent month is given below: Sales (13,200 units * $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss $ 396,000 198,000 198,000 220, 500 $ (22,500) 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 $6,700 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $87,000 increase in monthly sales. 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 $34,000 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 $0.70 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,100? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $54,000 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 20,200 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 20,200)?

I'm sorry in advance there is alot to this problem
req 1, req 2, req 3, req 4 req 5a, req 5b and req 5c.

if some one can post the explanations on how you get the answers as well as the answers to it would help me out greatly.

thank you so much.

Answer 1

Answer is given with working and formulas

1 Contribution margin % Break even point in units Break even point in sale dollar 50% 14,700| $441,000 Selling price Variable cost Contribution margin per unit Contribution margin % (Contribution/Sales) *100 $30 $150 $15 50% Units Break even point in units Fixed cost Contribution margin per unit $220,500 $151 14,700 Sales $ Break even point in sale dollar Fixed cost Contribution margin % $220,500 50%) $441,000 2 Sales Variable expenses Contribution margin Fixed expenses Net operating income $483,000 $241,500 50% of sales $241,500 $227,200 (220,500+ 6,700) $14,300 Increase in monthly income $36,800 3 Revised net operating income (loss) $62,3001 per unit Sales units Sales Variable expenses Contribution margin Fixed expenses Net operating income (Loss) Total 26,400 $712,800 $396,000 $316,800 $254,500 $62,300 $27 10% reduction in selling price $15 $12 (220,500+ 34,000) Units 4 Unit sales to achieve target profit Fixed cost + Target profit Contribution margin per unit $224,600 $14.30 15,706 Fixed cost Monthly profit Total Target $220,500 $4,100 $224,600 Selling price Variable cost Contribution margin per unit $30.00 $15.70 (15+$0.70) $14.301 60% New CM Ratio Break even point in units Break even point in Sales $ 15,2501 $457,500 Units Break even point in units Fixed cost Contribution margin per unit $274,500 $180 15,250 Revised Fixed cost = 220,500+ 54,000 Sales $ Break even point in Sales $ Fixed cost Contribution margin % $274,500 60% $457,500 Selling price Variable cost Contribution margin per unit Variable cost (Contribution/Sales)*100 $30 $12 (15-3) $18 60% b % Sales Variable expenses Contribution Fixed cost Operating Income Contribution Margin Income Statement Not Automated Automated Amount per unit % Amount per unit $606,000 $30 100% $606,000 $30 $303,000 $15 50% $242,400 $12 $303,000 $15 50% $363,600 $18 $220,5001 $274,500 $82,500 $89,100 100% 40% 60% с Yes Operations should be automated since operating income is higher