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Due to erratic sales of Its sole product-a high-capacity battery for laptop computers-PEM, Incorporated, has been experlencing financial difficulty for some time. The company's contribution format Income statement for the most recent month is given below. Sales (13, 200 urnits « $20 per unit) Variable expenses Contribution margin Fixed expenses $ 264,000 132,000 132,800 147,000 $ (15,800) Net operating loss 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 $6.100 Increase In the monthly advertising budget, combined with an Intensified effort by the sales staff, will Increase unit sales and the total sales by $61,000 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 orlginal data. The sales manager is convinced that a 10% reduction In the selling price, combined with an Increase of $33.000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating Income (loss)?

Due to erratic sales of Its sole product-a high-capacity battery for laptop computers-PEM, Incorporated, has been experlencing financial difficulty for some time. The company's contribution format Income statement for the most recent month is given below. Sales (13, 200 urnits « $20 per unit) Variable expenses Contribution margin Fixed expenses $ 264,000 132,000 132,800 147,000 $ (15,800) Net operating loss 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 $6.100 Increase In the monthly advertising budget, combined with an Intensified effort by the sales staff, will Increase unit sales and the total sales by $61,000 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 orlginal data. The sales manager is convinced that a 10% reduction In the selling price, combined with an Increase of $33.000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating Income (loss)?

FINANCIAL ACCOUNTING
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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Due to erratic sales of Its sole product-a high-capacity battery for laptop computers-PEM, Incorporated, has been experlencing financial difficulty for some time. The company's contribution format Income statement for the most recent month Is glven below: Sales (13,289 units x $20 per unit) Variable expenses Contribution margin Fixed expenses $ 264,889 132,000 132,000 147,000 Net operating loss $ (15,808) Required: 1. Compute the company's CM ratio and Its break-even polnt In unit sales and dollar sales. 2 The president believes that a $6.100 Increase In the monthly advertising budget, combined with an Intensified effort by the sales staff, will Increase unit sales and the total sales by $81,000 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 $33.000 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 $0.50 per unit. Assuming no other changes, how many units would have to be sold each month to attaln a target profit of $4,700? 5. Refer to the orlglinal data. By automating. the company could reduce varlable expenses by $3 per unit. However, fixed expenses would Increase by $54,000 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 20.800 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 (Assumlng that the company expects to sell 20,800 units)? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req SA Req 5B Req 5C Compute the company's CM ratio and its break-even point in unit sales and dollar sales. (Do not round intermediate calculations. Round "CM ratio" to the nearest whole percentage (i.e., 0.234 should be entered as 23"). CM ratio Break-even point in unit sales Break-even point in dollar sales
Transcribed Image Text:Due to erratic sales of Its sole product-a high-capacity battery for laptop computers-PEM, Incorporated, has been experlencing financial difficulty for some time. The company's contribution format Income statement for the most recent month Is glven below: Sales (13,289 units x $20 per unit) Variable expenses Contribution margin Fixed expenses $ 264,889 132,000 132,000 147,000 Net operating loss $ (15,808) Required: 1. Compute the company's CM ratio and Its break-even polnt In unit sales and dollar sales. 2 The president believes that a $6.100 Increase In the monthly advertising budget, combined with an Intensified effort by the sales staff, will Increase unit sales and the total sales by $81,000 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 $33.000 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 $0.50 per unit. Assuming no other changes, how many units would have to be sold each month to attaln a target profit of $4,700? 5. Refer to the orlglinal data. By automating. the company could reduce varlable expenses by $3 per unit. However, fixed expenses would Increase by $54,000 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 20.800 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 (Assumlng that the company expects to sell 20,800 units)? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req SA Req 5B Req 5C Compute the company's CM ratio and its break-even point in unit sales and dollar sales. (Do not round intermediate calculations. Round "CM ratio" to the nearest whole percentage (i.e., 0.234 should be entered as 23"). CM ratio Break-even point in unit sales Break-even point in dollar sales
Due to erratic sales of Its sole product-a high-capacity battery for laptop computers-PEM, Incorporated, has been experlencing 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 $ 264,889 132,000 132,000 147,880 Net operating loss $ (15,808) Required: 1. Compute the company's CM ratio and Its break-even polnt in unit sales and dollar sales. 2 The president believes that a $6.100 Increase In the monthly advertising budget, combined with an Intensified effort by the sales staff, will Increase unit sales and the total sales by $81,000 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% reductilon In the selling price, combined with an Increase of $33.000 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 origlinal 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 $0.50 per unit. Assuming no other changes, how many units would have to be sold each month to attaln a target profit of $4,700? 5. Refer to the original data. By automating, the company could reduce varlable expenses by $3 per unit. However, fixed expenses would Increase by $54,000 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 20.800 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 20,800 units)? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req 5A Req 58 Req 5C The president believes that a $6,100 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $81,000 per month. If the president is right, what will be the increase (decrease) in the company's monthly net operating income? (Do not round intermediate calculations.) by
Transcribed Image Text:Due to erratic sales of Its sole product-a high-capacity battery for laptop computers-PEM, Incorporated, has been experlencing 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 $ 264,889 132,000 132,000 147,880 Net operating loss $ (15,808) Required: 1. Compute the company's CM ratio and Its break-even polnt in unit sales and dollar sales. 2 The president believes that a $6.100 Increase In the monthly advertising budget, combined with an Intensified effort by the sales staff, will Increase unit sales and the total sales by $81,000 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% reductilon In the selling price, combined with an Increase of $33.000 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 origlinal 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 $0.50 per unit. Assuming no other changes, how many units would have to be sold each month to attaln a target profit of $4,700? 5. Refer to the original data. By automating, the company could reduce varlable expenses by $3 per unit. However, fixed expenses would Increase by $54,000 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 20.800 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 20,800 units)? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req 5A Req 58 Req 5C The president believes that a $6,100 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will increase unit sales and the total sales by $81,000 per month. If the president is right, what will be the increase (decrease) in the company's monthly net operating income? (Do not round intermediate calculations.) by
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