5. Refer to the original data. Assume that the company sold 42,000 units last ye

Question

5. Refer to the original data. Assume that the company sold 42,000 units last year. The sales manager is convinced that a 12% reduction in the selling price, combined with a $62,000 increase in advertising. would increase annual unit sales by 50%. Prepare two contribution format income statements, one showing the results of last year's operations and one showing the results of operations if these changes are made. (Do not round intermediate calculations. Round your "Per unit" answers to 2 decimal places.) a. Feather Friends, Inc., Last Year Proposed 42,000 units 63,000 units Total Unit Per Total Unit Sales 3,360.000 80.00 4435,200 70.40 1 ,680,000!40.001 2.520.000 40.00 000 40.00915,200 0.40 ixed 160,000 222,000 operating income 520,000 693,200 b. Would you recommend that the company do as the sales manager suggests? Yes 6. Refer to the original data. Assume again that the company sold 42,000 units last year. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.20 per unit. He thinks that this move, combined with some increase in advertising, would double annual unit sales. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach.

Explanation / Answer

REQ 5-A: CONTRIBUTION MARGIN INCOME STATEMENT LAST YEAR 42000 units PROPOSED 63000 units TOTAL PER UNIT TOTAL PER UNIT Sales 3360000 80 4435200 70.40 Less: vraiable cost 1680000 40 2520000 40.00 Contribution margin 1680000 40 1915200 30.40 Less: Fixed expene 160,000 222000 Net income 1,520,000 1693200 Req 5-b: Yyes, the company shall do as per sales manager advice. Req 6 INCREMENTAL ANALYSIS: LAST YEAR PROPOSED Nnet income Increase/(decrease) Sales revenue 3,360,000 Proposed(84000 units@80) 6720000 3360000.00 Lless: Variable cost 1,680,000 Proposed (84000 units @42.20) 3544800 -1864800.00 Contribution 1,680,000 3175200 1495200.00 Less; fixed cost 160000 160000 0.00 Incremental net income 1,520,000 3015200 1495200.00 This means the company can pay upto $ 1495200 of advertisement expense to remain at same level of profits

Related Questions

Navigate

• Browse (All)
• Browse 5
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.