Problem $5-22($Static$)$ CVP Applications; Contribution Margin Ratio; Break$-$Even Analysis;

Cost Structure $[$L$05-1,$ LO$5-2,$ L$05-4,$ LO$5-6,$ LO$5-7]$

PEM, Incorporated, is experiencing financial difficulty due to erratic sales of its only product, a high$-$capacity battery

for laptop computers. 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 a $$16,000$ increase in the monthly advertising budget, combined with an intensified effort

by the sales staff, will increase unit sales and the total sales by $$80,000$ 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 $$60,000$ 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 variable costs by $75$ cents per unit. Assuming no

other changes, how many units would have to be sold each month to attain a target profit of $$9,750?$

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

fixed expenses would increase by $$72,000$ each month.

a$.$ Compute the new CM ratio and the new break$-$even point in unit sales and dollar sales.

b$.$ Assume the company expects to sell $26,000$ units next month. Prepare two contribution format income

statements, one assuming operations are not automated and one assuming 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

$26,000$ units$)?$

Complete this question by entering your answers in the tabs below.

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

Note: Do not round intermediate calculations.