5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $53,000 each month.c. Would you recommend that the company automate its operations (Assuming that the company expects to sell 20,200)? ### Automation Decision Analysis#### Task Description**Complete this question by entering your answers in the tabs below.**The task requires analyzing and entering answers in the provided tabs labeled as Req 1, Req 2, Req 3, Req 4, Req 5A, Req 5B and Req 5C.---#### Requirement Analysis**Current Question:**Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $53,000 each month. Would you recommend that the company automate its operations (Assuming that the company expects to sell 20,200 units)?- **Yes**- **No**Note: Select either "Yes" or "No" based on your evaluation.---#### Graphical/Diagrammatic OverviewThere are no graphs or diagrams included in the image. All information is presented in text form. The interface has a user-interactive component allowing the user to select their response ("Yes" or "No") and navigate between requirements.---#### Steps to Analyze the Question:1. **Calculate the Reduction in Variable Expenses:** - Variable expense reduction per unit = $3 - Expected units to be sold = 20,200 - Total reduction in variable expenses = 3 * 20,200 = $60,6002. **Calculate the Increase in Fixed Expenses:** - Increase in fixed expenses per month = $53,0003. **Determine the Net Effect on Expenses:** - Compare the total reduction in variable expenses to the increase in fixed expenses: - Reduction in variable expenses: $60,600 - Increase in fixed expenses: $53,000 - Net effect = $60,600 - $53,000 = $7,600 savings#### Conclusion:Based on the net savings of $7,600, it would be cost-effective to automate the operations.---**Recommendation:**Select **Yes** to recommend automation.---**Navigation:**Click on the "Req 5B" button to proceed to the next part of the task. The "Req 5C" button is currently disabled. ### Case Study: Financial Performance of PEM, Inc. **Overview:**PEM, Inc., a company specializing in high-capacity batteries for laptop computers, has been experiencing financial difficulties due to erratic sales. Below is the company's contribution format income statement for the most recent month.**Income Statement:**- **Sales:** - Quantity Sold: 13,200 units - Selling Price: $20 per unit - **Total Sales Revenue:** 13,200 units x $20 per unit = **$264,000**- **Variable Expenses:** - Total Variable Expenses: **$132,000**- **Contribution Margin:** - Total Contribution Margin: Sales Revenue - Variable Expenses - **$264,000 - $132,000 = $132,000**- **Fixed Expenses:** - Total Fixed Expenses: **$147,000**- **Net Operating Loss:** - Total Contribution Margin - Fixed Expenses - **$132,000 - $147,000 = $(15,000)****Summary:**PEM, Inc. has reported a net operating loss of $15,000 for the most recent month. Despite generating $264,000 in sales revenue, the company's high fixed expenses and significant variable costs have contributed to the financial difficulty.**Graphical Explanation:**There are no accompanying graphs or diagrams in the provided data.**Educational Takeaway:**This case study illustrates the importance of managing both variable and fixed expenses to maintain profitability. PEM, Inc.'s experience demonstrates how fluctuations in sales volume can significantly impact the financial health of a company, especially when fixed costs are substantial. Understanding the contribution margin is crucial for identifying the break-even point and making strategic decisions to enhance overall financial performance.For further reading and detailed analysis, students and professionals are encouraged to explore cost-volume-profit (CVP) analysis and other financial management strategies to improve operational efficiency and profitability.

Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., 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 $ 264,000 132,000 132,000 147,000 $ (15,000)

Due to erratic sales of its sole product-a high-capacity battery for laptop computers-PEM, Inc., 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 $ 264,000 132,000 132,000 147,000 $ (15,000)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

100%

5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $53,000 each month.

c. Would you recommend that the company automate its operations (Assuming that the company expects to sell 20,200)?

### Automation Decision Analysis

#### Task Description

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

The task requires analyzing and entering answers in the provided tabs labeled as Req 1, Req 2, Req 3, Req 4, Req 5A, Req 5B and Req 5C.

---

#### Requirement Analysis

**Current Question:**

Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $53,000 each month. Would you recommend that the company automate its operations (Assuming that the company expects to sell 20,200 units)?

- **Yes**
- **No**

Note: Select either "Yes" or "No" based on your evaluation.

---

#### Graphical/Diagrammatic Overview

There are no graphs or diagrams included in the image. All information is presented in text form. The interface has a user-interactive component allowing the user to select their response ("Yes" or "No") and navigate between requirements.

---

#### Steps to Analyze the Question:

1. **Calculate the Reduction in Variable Expenses:**
- Variable expense reduction per unit = $3
- Expected units to be sold = 20,200
- Total reduction in variable expenses = 3 * 20,200 = $60,600

2. **Calculate the Increase in Fixed Expenses:**
- Increase in fixed expenses per month = $53,000

3. **Determine the Net Effect on Expenses:**
- Compare the total reduction in variable expenses to the increase in fixed expenses:
- Reduction in variable expenses: $60,600
- Increase in fixed expenses: $53,000
- Net effect = $60,600 - $53,000 = $7,600 savings

#### Conclusion:

Based on the net savings of $7,600, it would be cost-effective to automate the operations.

---

**Recommendation:**

Select **Yes** to recommend automation.

---

**Navigation:**

Click on the "Req 5B" button to proceed to the next part of the task. The "Req 5C" button is currently disabled.

### Case Study: Financial Performance of PEM, Inc.

**Overview:**
PEM, Inc., a company specializing in high-capacity batteries for laptop computers, has been experiencing financial difficulties due to erratic sales. Below is the company's contribution format income statement for the most recent month.

**Income Statement:**

- **Sales:**
- Quantity Sold: 13,200 units
- Selling Price: $20 per unit
- **Total Sales Revenue:** 13,200 units x $20 per unit = **$264,000**

- **Variable Expenses:**
- Total Variable Expenses: **$132,000**

- **Contribution Margin:**
- Total Contribution Margin: Sales Revenue - Variable Expenses
- **$264,000 - $132,000 = $132,000**

- **Fixed Expenses:**
- Total Fixed Expenses: **$147,000**

- **Net Operating Loss:**
- Total Contribution Margin - Fixed Expenses
- **$132,000 - $147,000 = $(15,000)**

**Summary:**
PEM, Inc. has reported a net operating loss of $15,000 for the most recent month. Despite generating $264,000 in sales revenue, the company's high fixed expenses and significant variable costs have contributed to the financial difficulty.

**Graphical Explanation:**
There are no accompanying graphs or diagrams in the provided data.

**Educational Takeaway:**
This case study illustrates the importance of managing both variable and fixed expenses to maintain profitability. PEM, Inc.'s experience demonstrates how fluctuations in sales volume can significantly impact the financial health of a company, especially when fixed costs are substantial. Understanding the contribution margin is crucial for identifying the break-even point and making strategic decisions to enhance overall financial performance.

For further reading and detailed analysis, students and professionals are encouraged to explore cost-volume-profit (CVP) analysis and other financial management strategies to improve operational efficiency and profitability.

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