Due to erratic sales of its sole product—a high-capacity battery for laptop comp
ID: 2570956 • 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 unit sales and dollar sales.
The president believes that a $6,800 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 effect on the company’s monthly net operating income or loss? (Use the incremental approach in preparing your answer.)
Refer 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?
4.) 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 $0.50 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,000? (Do not round intermediate calculations and round your final answer to the nearest whole number.)
5.)
Refer to the original data. By automating, the company could reduce variable expenses in half. However, fixed expenses would increase by $57,000 each month.
Compute the new CM ratio and the new break-even point in both unit sales and dollar sales. (Use the CM ratio to calculate your break-even point in dollars. Round your final answers to the nearest whole number.)
Assume that the company expects to sell 20,000 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are.
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 $0.50 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,000? (Do not round intermediate calculations and round your final answer to the nearest whole number.)
Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below:
Explanation / Answer
1)Variable cost per unit = 130000/13000=$ 10
contribution per unit =price -variable cost
= 20-10 =$10
CM ratio =contribution//price
= 10/20 =.50 or 50%
BEP(units)=fixed cost/contribution per unit
= 145000/10
= 14500 units
BEP($) =Fixed cost /CM ratio
= 145000/.50
= $ 290,000
2)
3)Units sales= 13000*2=26000
Selling price : 20(1-.10)= 18
New fixed cost =145000+35000 =180000
4)
New Variable cost : 10+.50 = 10.50
COntribution revised = 20-10.5 =9.5
Desired unit sales =[FIxed cost+desired profit ]/contribution per unit
=[145000+4000]/9.5
= 149000/9.5
= 15684units
Increase In contribution due to increase in sales [CM ratio*Increased sales ][87000*.50] 43500 less:increase in advertising -6800 nEt effect on net operating income 36700Related Questions
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