Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Incorporated, has been...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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 (13,200 units x $20 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss Required: $ 264,000 158,400 105,600 117,600 $ (12,000) 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6,300 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $81,000 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 $30,000 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 $0.80 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,900? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $51,000 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 20,700 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 20,700 units)? 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 (13,200 units x $20 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss Required: $ 264,000 158,400 105,600 117,600 $ (12,000) 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6,300 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $81,000 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 $30,000 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 $0.80 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,900? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $51,000 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 20,700 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 20,700 units)?
Expert Answer:
Answer rating: 100% (QA)
Answer 1 CM Ratio Contribution Margin Sales 105600 264000 04 or 40 Breakeven point in unit sales Fix... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Posted Date:
Students also viewed these accounting questions
-
A construction science researcher is interested in evaluating the relationship between energy consumption by the homeowner and the difference between the internal and external temperatures. There...
-
Number of each machine needed and total purchasing cost A B. C. b.Consider this additional information: The machines differ in terms of hourly operating costs: The A machines have an hourly operating...
-
The substitution u=sin(x) is suitable to evaluate the integral cosx sin 3x O True O False
-
B52 Skate Training prepares adjustments annually and showed the following on its June 30, 2014, year-end: a. The Prepaid Arena Rental of $182,000 was paid on February 1, 2014. It represents seven...
-
How to draft a Job Analysis for an employee's jobs in human resources. Explain the process you used and why. Explain the outcomes of the job analysis and how these outcomes would be useful in the...
-
For the ammonia process in Example 6.4, consider operation of the reactor at \(932^{\circ} \mathrm{F}\) and \(400 \mathrm{~atm}\). Use a simulator to show how the product, recycle, and purge flow...
-
On January 1, 2011, Portico Company acquires 8,000 shares of Sauder Company by issuing 10,000 of its common stock shares with a par value of $10 per share and a fair value of $70 per share. The price...
-
Using the Iterative Newton - Euler method, find the equations of motion of the 2 R link manipulator, shown in Fig 5 . You may assume that the links can be modelled as point masses located as shown in...
-
Q1: Consider the mass-spring oscillator without friction: y" + y = 0. Suppose we add a force which corresponds to push (to the left) of the mass as it oscillates. We suppose that push is described by...
-
Corruption measures employed in empirical work are useless because they are based on subjective measures. Do you agree or disagree? Why?
-
Raider wants to acquire Underperformer for $142,500.00 in the form of either cash or stock. The synergy value of the deal is $26,250.00. Raider has 18,600 shares outstanding at a price of $18.50 a...
-
The stock Y just paid a dividend of $3.20 this morning. The stock is currently trading at $76.30, and the required rate of return is 11.3%. Under these circumstances, what is the expected price of...
-
A total of 100 maintenance costs, C, for ground-mounted transformers in high-density housing areas was collected by the City Electricity Authority. The costs are clustered into $200 cells with...
-
Your proposal consists of a recommendation for change to the current healthcare system. It should follow the goals outlined below. Above all, your proposal should express your considered judgment,...
-
Identify and describe the purpose of a needs assessment?
-
The text defined intrinsic value as the value of an asset given a hypothetically complete understanding of the assets investment characteristics. Discuss why hypothetically is included in the...
-
Define and distinguish between an independent and an agency adoption.
-
Identify the categories of individuals who can adopt children.
-
Define and give an example of an equitable adoption.
Study smarter with the SolutionInn App