**Financial Analysis for PEM, Incorporated: High-capacity Battery Sales**PEM, Incorporated has experienced financial difficulties due to erratic sales of its high-capacity battery for laptop computers. Below is the income statement for the most recent month and relevant data:### Contribution Format Income Statement:- Sales (12,600 units x $30 per unit): $378,000- Variable expenses: $226,800- Contribution margin: $151,200- Fixed expenses: $169,200- Net operating loss: $(18,000)### Analysis Requirements:1. **CM Ratio and Break-even Point Calculation:** - **CM Ratio:** Contribution Margin / Sales - **Break-even Point in Units and Dollar Sales:** $ \text{Fixed Expenses} / \text{CM per Unit} $ (Units) $ \text{Fixed Expenses} / \text{CM Ratio} $ (Dollars) 2. **Impact of Increased Advertising Budget:** - A $6,600 increase in monthly advertising budget, combined with intensified sales effort, is expected to increase sales by $82,000. - Calculate the increase (decrease) in the company’s monthly net operating income.3. **Impact of Price Reduction and Advertising Increase:** - Sales manager suggests a 10% reduction in selling price and an increase of $39,000 in the monthly advertising budget will double unit sales. - Calculate the revised net operating income (loss).4. **Impact of New Packaging on Sales:** - Marketing Department proposes a new packaging at an additional cost of $0.70 per unit to increase sales. - Determine the number of units that need to be sold each month to attain a target profit of $4,400.5. **Impact of Automation on Variable and Fixed Expenses:** - Automation could reduce variable expenses by $3 per unit, but fixed expenses would increase by $53,000 monthly. - Compute the new CM Ratio and break-even point in unit sales and dollars. - Prepare two income statements (automated and non-automated), assuming the company expects to sell 20,900 units next month. - Decide if the company should automate its operations assuming 20,900 units are sold.**Important Equations:**- **CM Ratio:** Contribution Margin / Sales- **CM per Unit:** Selling Price per Unit - Variable Expense ### Exercise: Impact of Pricing and Advertising on Net Operating Income**Directions:**Please complete this question by entering your answers in the tabs below.**Requirements:**- Req 1- Req 2- Req 3- Req 4- Req 5A- Req 5B- Req 5C**Scenario:**Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $39,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)? (Losses should be entered as a negative value.)**Input Field:**- Revised net operating income (loss): [ ]**Navigation:**- [ < Req 2 ]- [ Req 4 > ]---**Graph/Diagram:**This section consists of tab navigation options and an input field to calculate and enter the revised net operating income or loss. No graphs or diagrams are present in the image.

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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 $30 per unit) Variable expenses Contribution margin Fixed expenses $ 378,000 226,800 151,200 169,200 Net operating loss $ (18,000) Required: 1. Compute the company's CM ratio and its break-even point in unit sales and dollar sales. 2. The president believes that a $6,600 Increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $82,000 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 $39,000 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 $0.70 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,400? 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. 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 20,900 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 20,900 units)?