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 (12,600 units x $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss Required: $ 378,000 226,800 151,200 169,200 $ (18,000) 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $89,000 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 $38,000 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 $0.60 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,800? 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 20,700 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 (12,600 units x $30 per unit) Variable expenses Contribution margin Fixed expenses Net operating loss Required: $ 378,000 226,800 151,200 169,200 $ (18,000) 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $89,000 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 $38,000 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 $0.60 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,800? 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 20,700 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)
1 Computing CM Ratio and BreakEven Point CM Ratio Contribution Margin Sales 151200 378000 040 or 40 ... 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 choice has to be made between two investment proposals. Proposal A requires an immediate outlay of $60 000 and a further outlay of $40 000 after 3 years. Net returns are $20 000 per year for 10...
-
Show that S ª Tc = Sc © Tc (S © T)c = Sc ª Tc Set union and intersection have straightforward extensions to collections of sets. The union of a collection C of sets U S={x : x S...
-
For a \(25 \mathrm{~mm}\) diameter \(6061-\mathrm{T} 6\) aluminum \(\operatorname{rod}\left(ho=2,700 \mathrm{~kg} / \mathrm{m}^{3} ight.\) and \(E=70 \mathrm{GPa}\) ) with a nominal length of \(190...
-
2.1) Perform Exploratory Data Analysis [both univariate and multivariate analysis to be performed]. The inferences drawn from this should be properly documented. 2.2) Scale the variables and write...
-
Evaluate the ecological impacts of symbiotic relationships, including mutualism, commensalism, and parasitism, on population dynamics and community structure in terrestrial and aquatic ecosystems .
-
Explain the difference between the cost method, the equity method, and the fair value method. Provide examples to support your explanations.
-
Choose a professional blog of interest to you. Read a minimum of ten posts. Then, in one to two pages, respond to the following questions: A. What is the name and web address of the blog? B. What is...
-
The Sorry Charlie Tuna Company produces canned tuna fish. The true mean weight of a can of tuna is 6 oz with a standard deviation of 1 oz. Assume the population is normally distributed, and suppose...
-
Reread the three examples of personal social media use that hurt employers (see the beginning of the Using Social Media Ethically section). For each item, do the following: A. Explain why the social...
-
Construct task-oriented routine messages, including requests, expectations, directions, responses to inquiries, announcements, and claims.
-
In Freeport High School, 40 % of the seniors who are eligible to vote indicated that they plan to vote in the upcoming election. What is the probability of selecting a random sample of 400 students...
-
Complete the following: choose a group in which you are currently involved or have been involved in the past. A group or team associated with a current employer often works the best, but you may also...
-
On January 1, 2018, Khalid Ltd., which follows IAS 17, entered into an eight-year lease agreement for three dryers. Annual lease payments for the equipment are $28,500 at the beginning of each lease...
-
How did the Fed hit its target for the federal funds rate in the pre-2008 scarce-reserves regime?
-
What is the zero lower bound in monetary policy? What tools can the Fed use if it wants to implement an expansionary monetary policy at the zero lower bound?
-
Draw a demand and supply graph for the federal funds market to show the demand and supply of reserves in the current ample-reserves regime. How can the Fed increase the federal funds rate? Show the...
Study smarter with the SolutionInn App