Solution-By how much will the company net operating income

By how much will the company net operating income increase

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Reference no: EM131832168

Problem - 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:

Sales (19,500 units at $30 per unit)	$585,000
Variable expenses	409,500
Contribution margin	175,500
Fixed expenses	180,000
Net operating loss	$(4,500)

Requirement 1: Compute the company's CM ratio and its break-even point in both units and dollars.

Requirement 2: The president believes that a $16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $80,000 increase in monthly sales. If the president is right, by how much will the company's net operating income increase or decrease?

Requirement 3: Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $60,000 in the monthly advertising budget, will cause unit sales to double. What will the new contribution format income statement look like if these changes are adopted?

Reference no: EM131832168

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By how much will the company net operating income increase

Reference no: EM131832168

Reference no: EM131832168

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