PEM, Inc., has been experiencing difficulty for some time due to erratic sales of its sole...


PEM, Inc., has been experiencing difficulty for some time due to erratic sales of its sole product-a high-capacity battery for laptop computers. The company's contribution format income statement for the most recent month is given below.

Sales (12,900 units x S$40 per unit $516,000
Variable expenses 309.600
Contribution margin 206.400
Fixed expenses230,400
Net operating loss $(24,000)

By automating, the company could reduce variable expenses in half. However, the fixed expenses would increase by $51,000 each month.

a. Compute the new CM ratio and the new break-even point in both unit sales and dollar sales.

b. Assume that the company expects to sell 20,200 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are.

Contribution Margin:

Contribution Margin is margin got after deduction of all variable expenses from the sales in other words it is the margin which is available for paying of

all fixed expenses and get operating profit and this ratio is always express in percentage.

Answer and Explanation: 1

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1) Sale $ 12900 Units

Particular Before automation After Automation
Sales $ 516000 $ 516000 ...

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Learn more about this topic:

Creating Contribution Margin Income Statements


Chapter 8 / Lesson 10

Contribution margin income statements subtract fixed costs from total sales to give a picture of how much is available for spending. Learn how these statements are produced, their importance to budgeting, and what distinguishes them from regular income statements.

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