1. Prepare the company's current contribution margin income statement. 2. Calculate the change in operating income that would result from implementing each of the following independent strategy alternatives. Compare each alternative to the current operating income as you calculated in Requirement 1. Consider each alternative separately. a. Alternative 1: The company believes volume will increase by 20% if salespeople are paid a commission of 5% of the sales price rather than the current $5 per unit. b. Alternative 2: The company believes that spending an additional $2,000 on advertising would increase sales volume by 12%. C. Alternative 3: The company is considering raising the selling price to $94 but believes volume would drop by 24% as a result. d. Alternative 4: The company would like to source the product from domestic suppliers who charge S13 more for each unit. Management believes that the "Made in the USA" label would increase sales volume by 20% and would allow the company to increase the sales price by $6 per unit. In addition, the company would have to spend an additional $1.500 in marketing costs to get the word out to potential customers of this change.
1. Prepare the company's current contribution margin income statement. 2. Calculate the change in operating income that would result from implementing each of the following independent strategy alternatives. Compare each alternative to the current operating income as you calculated in Requirement 1. Consider each alternative separately. a. Alternative 1: The company believes volume will increase by 20% if salespeople are paid a commission of 5% of the sales price rather than the current $5 per unit. b. Alternative 2: The company believes that spending an additional $2,000 on advertising would increase sales volume by 12%. C. Alternative 3: The company is considering raising the selling price to $94 but believes volume would drop by 24% as a result. d. Alternative 4: The company would like to source the product from domestic suppliers who charge S13 more for each unit. Management believes that the "Made in the USA" label would increase sales volume by 20% and would allow the company to increase the sales price by $6 per unit. In addition, the company would have to spend an additional $1.500 in marketing costs to get the word out to potential customers of this change.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Valet Seating Company is currently selling 3,200 oversized bean bag chairs a month at a price of $74 per chair. The variable cost of each chair sold includes $35 to purchase the bean bag chairs from suppliers and a $5 sales commission. Fixed costs are $13,000 per month. The company is considering making several operational changes and wants to know how the change will impact its operating income.
Transcribed Image Text:1. Prepare the company's current contribution margin income statement.
2. Calculate the change in operating income that would result from implementing
each of the following independent strategy alternatives. Compare each
alternative to the current operating income as you calculated in Requirement 1.
Consider each alternative separately.
a. Alternative 1: The company believes volume will increase by 20% if
salespeople are paid a commission of 5% of the sales price rather than the
current $5 per unit.
b. Alternative 2: The company believes that spending an additional $2,000 on
advertising would increase sales volume by 12%.
C. Alternative 3: The company is considering raising the selling price to $94
but believes volume would drop by 24% as a result.
d. Alternative 4: The company would like to source the product from domestic
suppliers who charge S13 more for each unit. Management believes that the
"Made in the USA" label would increase sales volume by 20% and would
allow the company to increase the sales price by $6 per unit. In addition, the
company would have to spend an additional $1.500 in marketing costs to get
the word out to potential customers of this change.
Transcribed Image Text:Requirement 1. Prepare the company's current contribution margin income statement. (Use parentheses or a minus sign for an operating loss.)
Valet Seating Company
Contribution Margin Income Statement
Sales revenue
Variable expenses:
Cost of goods sold
Operating expenses
Contribution margin
Fixed expenses
Operating income (loss)
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