accounting question 404038 | Homework Solutions
| Assume that the operating results for last year were as follows: |
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Refer to the original data. Assume that the company sold 42,000 units last year. The sales manager is convinced that a 10% reduction in the selling price, combined with a $62,000 increase in advertising expenditures, would increase annual unit sales by 50%. Don't use plagiarized sources. Get Your Custom Essay on
accounting question 404038 | Homework Solutions
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| a. |
Prepare two contribution format income statements, one showing the results of last year’s operations and one showing what the results of operations would be if these changes were made.(Input all amounts as positive values except losses which should be indicated by minus sign. Do not round intermediate calculations. Round proposed units to the nearest whole number. Round your “Per unit” answers to 2 decimal places.) |
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Last Year |
Proposed |
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| Total | Per Unit | Total | Per Unit | |
| (Click to select) Contribution margin Variable expenses Net operating income (loss) Sales Fixed expenses | $ | $ | $ | $ |
| (Click to select) Sales Variable expenses Contribution margin Net operating income (loss) Fixed expenses | ||||
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| (Click to select) Sales Net operating income (loss) Contribution margin Variable expenses Fixed expenses | $ | $ | ||
| (Click to select) Contribution margin Fixed expenses Sales Net operating income (loss) Variable expenses |
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| (Click to select) Sales Contribution margin Variable expenses Fixed expenses Net operating income (loss) | $ | $ | ||
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| b. | Would you recommend that the company do as the sales manager suggests? | ||||
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| 6. |
Refer to the original data. Assume again that the company sold 42,000 units last year. The president feels that it would be unwise to change the selling price. Instead, he wants to increase the sales commission by $1.80 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. |
| The amount by which advertising can be increased is | $ |
| Sales | $ | 3,240,000 |
| Variable expenses |
1,620,000 |
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| Contribution margin | 1,620,000 | |
| Fixed expenses | 200,000 | |
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| Net operating income | $ |
1,420,000 |
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