Question

9 of 15 (0 complete) HW Score: 0%, 0 of 72 pts Score: 0 of 3 pts S7-13 (similar to) Question Help O Fairy Rain Gear sells monogrammed umbrellas on Etsy. Fairy Rain Gear is currently selling 1,200 umbrellas a month at a price of $34 per umbrella. The variable cost of each umbrella sold includes $7 to purchase the merchandise from suppliers and a $5 commission paid to Etsy. Fixed costs are $3,200 per month. The company is considering raising the selling price of each umbrella to $39, but believes the number of umbrellas sold would drop by 35% as a result of the price increase. Should Fairy Rain Gear raise the selling price of its umbrellas? Begin by preparing the contribution margin income statement at the current selling price of $34 per umbrella. Fairy Rain Gear Contribution Margin Income Statement

Answer 1

Solution:

Fair Rain Gear
Contribution margin income statement (At current selling price)
Particulars	Amount
Sales (1200*$34)	$40,800.00
Variable expenses (1200*$12)	$14,400.00
Contribution margin	$26,400.00
Fixed expenses	$3,200.00
Income from operations	$23,200.00

Fair Rain Gear
Contribution margin income statement (At New selling price)
Particulars	Amount
Sales (1200*65%*$39)	$30,420.00
Variable expenses (1200*65%*$12)	$9,360.00
Contribution margin	$21,060.00
Fixed expenses	$3,200.00
Income from operations	$17,860.00

As income from operations is decreasing, therefore company should not raise its selling price.