Due to erratic sales of its sole product—a high-capacity battery for laptop comp
ID: 2490535 • Letter: D
Question
Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below:
Compute the company's CM ratio and its break-even point in both units and dollars.
The president believes that a $7,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $83,000 increase in monthly sales. If the president is right, what will be the effect on the company’s monthly net operating income or loss? (Use the incremental approach in preparing your answer.)
efer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $35,000 in the monthly advertising budget, will double unit sales. What will the new contribution format income statement look like if these changes are adopted?
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Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would help sales. The new package would increase packaging costs by $0.60 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,900? (Do not round intermediate calculations and round your final answer to the nearest whole number.)
Refer to the original data. By automating, the company could reduce variable expenses in half. However, fixed expenses would increase by $59,000 each month.
Compute the new CM ratio and the new break-even point in both units and dollars.(Round units to nearest whole unit, CM ratio to nearest whole percent. Omit the "%" and "$" signs in your response.)
B) Assume that the company expects to sell 21,000 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are.
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Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below:
Explanation / Answer
a) Original Req.3 10% red in SP and increase in add cost, double uniit sales Req: 5 ahalf variable cost and increse in fixed cost by $59000 No. of units N 12600 12600 12600 Addition in units 12600 Total Units T 25200 Selling Price 36 Variable expenses per unit V/N 20 20 Sales (12,600 units × $40 per unit) S $ 504000 907200 504000 Variable expenses V 252000 504000 126000 Contribution margin C 252000 403200 378000 Fixed expenses F 282000 317000 341000 Net operating Income/(loss) $ -30000 86200 37000 Contribution per unit Contribution Margin/No. of units sold D=C/N 20 30 CM Rato=Contribution Margin/Sales R=C/S 0.5 0.75 Breakeven in units= Fixed Cost/Contribution per unit F/D 14100 11367 in $=Fixed Asset/CM ratio F/R 564000 454667 Ans 2 No. of incrementa units 83000/40 2075 Incremental sales 83000 Less: Incremental variable cost (2075*20) 41500 Contribution margin C 41500 Inv=cremental Fixed expenses F 7000 Net operating Inocme $ 34500 Ans 4 No. of units to be sold= 282000+4900/(40-20.6) 14788.65979 14789 units Ans 5 b No. of units 21000 Non Automated Automated Total per unit % Total per unit % Sales (21000 units) 840000 40 100 840000 40 80 Variable expenses V 420000 20 50 210000 10 20 Contribution margin C 420000 20 50 630000 30 60 Fixed expenses F 282000 341000 Net operating Income/(loss) 138000 289000 No. of units 26000 Non Automated Automated Total per unit % Total per unit % Sales (216000 units) 1040000 40 100 1040000 40 80 Variable expenses V 520000 20 50 260000 10 20 Contribution margin C 520000 20 50 780000 30 60 Fixed expenses F 282000 341000 Net operating Income/(loss) 238000 439000 Note Ans 1,3 and 5 a is in the table which is at the topmost of the solution and in 5 b sales in units is mentioned 21000 and 26000 I have done from both
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