Question 5A . **Erratic Sales Impact on PEM, Inc.: Contribution Format Income Statement Analysis**Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, incorporated, has experienced financial difficulty for some time. The company’s contribution format income statement for the most recent month is given below:**Income Statement:**| Description | Amount ||-----------------------------------------|--------|| **Sales (12,600 units × $30 per unit)** | $378,000 || **Variable expenses** | $226,800 || **Contribution margin** | $151,200 || **Fixed expenses** | $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. **Impact of Advertising Budget Increase:** - 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. **Impact of Price Reduction and Increased Advertising:** - Referring 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. **Impact of Packaging Cost Increase:** - Referring 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. **Impact of Automation:** - Referring 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. - **Compute the new CM ratio and the new break-even point in unit sales and dollar sales.** - **Compare contributions:** - (a) Assume that the company expects to sell 20,900 **Educational Website: Understanding Cost Management and Break-Even Analysis**---### Interactive Learning Activity: Break-Even Analysis with Automation Adjustments**Instructions:**Complete this question by entering your answers in the tabs below.---**Scenario:**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. Compute the new CM (Contribution Margin) ratio and the new break-even point in unit sales and dollar sales.**Guidelines:**- Do not round intermediate calculations.- Round the "CM ratio" to the nearest whole percentage (i.e., 0.234 should be entered as "23").- Round other answers to the nearest whole number.**Input Fields:**1. **CM Ratio:** - **Field:** [ ] - **Unit:** % - **Current Calculated Value:** 50%2. **Break-even point in unit sales:** - **Field:** [ ] 3. **Break-even point in dollar sales:** - **Field:** [ ]**Navigation Buttons:**- **Previous Step:** [Req 4]- **Next Step:** [Req 5B]**Visual Aid:**Below the instructions, you can see the input table to enter your calculated values.---**Explanation of Graphs/Diagrams:**This exercise involves calculations to determine the financial metrics affected by changes in variable and fixed costs. The key metrics are:- **CM Ratio:** This represents the ratio of contribution margin to sales revenue.- **Break-even point in unit sales:** This is the sales volume at which total revenues equal total costs, resulting in zero profit.- **Break-even point in dollar sales:** This is the sales revenue amount at which total revenues equal total costs.You need to use the provided space to input the new CM ratio and both break-even points considering the impact of automation on costs.---**Interactive Features:**Ensure you proceed through each requirement sequentially using the provided navigation buttons to complete all steps necessary for understanding the break-even analysis.For additional assistance, hover over the information icons next to each input field.---For more learning resources and detailed step-by-step guides, visit our [Cost Management Section].---This activity will enhance your skills in financial analysis and decision-making within the context of cost management. Happy learning!

The break-even point is the point where the company is able to cover all its costs but does not make…

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 $ 378,000 226,800 151,200 169,200 Contribution margin Fixed expenses 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)?