# Due to erractic sales of its sole product – a high-capacity for laptop computers – PEM Ltd has been experiencing

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Sales (19,500 units x (30)E585,000Less variable expenses409,500Contribution margin175,500Less fixed expenses180,000Net lossE(4,500)Required1 Compute the company’s CM ratio and its break-even point in both units and pounds.2 The president believes that a \$16,000 increase in the monthly advertising budget, combined with anintensified effort by the sales staff, will result in an \$80,000 increase in monthly sales. If the president isright, what will be the effect on the company’s monthly profit or loss? (Use the incremental approach inpreparing your answer.)3 Refer to the original data. The sales manager is convinced that a 10% reduction in the selling pricecombined with an increase of \$60,000 in the monthly advertising budget, will cause unit sales to double. What will the new profit and loss account look like if these changes are adopted?4Refer to the original data. The Marketing Department thinks that a fancy new package for the laptopcomputer battery would help sales. The new package would increase packaging costs by 75 pence perunit. Assuming no other changes, how many units would have to be sold each month to earn a profit ofE9,750?5 Refer to the original data. By automating certain operations, the company could reduce variable costs by\$3 per unit. However, fixed costs would increase by \$72,000 each month.(a) Compute the new CM ratio and the new break-even point in both units and pounds.(b) Assume that the company expects to sell 26,000 units next month. Prepare two profit and Idsaccounts, one assuming that operations are not automated and one assuming that they are. (Shopdata 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? Explain.

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