Question

Angel Rain Gear sells monogrammed umbrellas on Etsy. Angel Rain Gear is currently selling 2,000 umbrellas a month at a price of $25 per umbrella. The variable cost of each umbrella sold includes $10 to purchase the merchandise from suppliers and a $3 commission paid to Etsy. Fixed costs are $2,500 per month. The company is considering raising the selling price of each umbrella to $30, but believes the number of umbrellas sold would drop by 25% as a result of the price increase. Should Angel Rain Gear raise the selling price of its umbrellas? Begin by preparing the contribution margin income statement at the current selling price of $25 per umbrella. Angel Rain Gear Contribution Margin Income Statement Next, calculate Angel Rain Gear's operating income if the changes are made. (Use parentheses or a minus sign for an operating loss.) ? Choose from any list or enter any number in the input fields and then continue to the next question

Answer 1

В4 sales revenue В 1 Angel Rain Gear 2 contribution margin income statement (existing) $50,000 3 sales revenue 4 less: variable costs contribution margin less: fixed costs $26,000 $24,000 5 6 $2,500 $21,500 7 operating income 8 if changes are made, the income statement shall be the following 10 Angel Rain Gear 11 contribution margin income statement (after changes) sales revenue 12 $45,000 13 less: variable costs contribution margin less: fixed costs $19,500 14 $25,500 $2,500 15 16 operating income (loss) $23,000 17 18 . co. st CO O

$ 23,000 If changes are made, Angel Rain Gear's operating income (loss) will be should increase raise the selling price of its umbrellas because its operating income will Angel Rain Gear $1,500 by

for formulas and calculations, refer to the image below -

sales revenue В4 1 Angel Rain Gear 2 contribution margin income statement (existing) sales revenue |=2000*25 4 less: variable costs contribution margin less: fixed costs - 2000*(10+3 ) 5 C4-C5 6 2500 7 |-Сб-C7 8 operating income 9 if changes are made, the income statement shall be the following 10 Angel Rain Gear 11 contribution margin income statement (after changes) sales revenue 12 - 1500*30 13 less: variable costs contribution margin less: fixed costs = 1500* (10+3) -C13-C14 14 15 2500 16 operating income (loss) -C15-C16 17 18

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