Question

Tools of the Past (TOP) produces old-fashioned simple corkscrews Last year was not a good year for sales but TOP expects the market to pick up this year. Last year's income statement showed Click the loon to view the income statement) Toinke advantage of the anticipated growth in the market, TOP is considering various courses of action:- 1. Do nothing I TOP does nothing. expects sales to increase by 10% 2. Spend $1.500 on a new advertising campaign that is expected to increase sales by 50% 3. Raise the price of the corkscrew to $5.00. This is expected to decrease sales quantities by 20% 4. Redesign the desires and increase the selling price to $6.00 while increasing the variable costs by $1.00 per unit The sales level is not expected to change from last year Requirements Evaluate each of the weatives considered by TOP. What should TOP do? Requirement. Evaluate the motives by completing an income statement for Data Table Alternative 80.000 Si Revenue Vert Costs Contribution Margin Sales revenus (14.00 percorkscrew) Variable cost ($3.00 per corkscrew) Contribution margin Fixed Cow Operating income 12.000 Operating income Print Dono

Answer 1

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Tools of the Past
Number of units sold currently		Note
Sales revenue	80,000.00	A
Price per unit	4.00	B
Number of units sold	20,000.00	C=A/B
Alternative 1
Number of units sold	20,000.00
Increase by	10%
Number of units increased	2,000.00
Revised units sold	22,000.00
Sell Price per unit	4.00
Sales revenue	88,000.00
Variable cost per unit	3.00
Variable cost	66,000.00
Income Statement	Amount $
Sales revenue	88,000.00
Variable cost	66,000.00
Contribution margin	22,000.00
Fixed costs	8,000.00
Operating profit	14,000.00
Alternative 2
Number of units sold	20,000.00
Increase by	50%
Number of units increased	10,000.00
Revised units sold	30,000.00
Sell Price per unit	4.00
Sales revenue	120,000.00
Variable cost per unit	3.00
Variable cost	90,000.00
Income Statement	Amount $
Sales revenue	120,000.00
Variable cost	90,000.00
Contribution margin	30,000.00
Fixed costs	8,000.00
Additional advertising costs	1,500.00
Operating profit	20,500.00
Alternative 3
Number of units sold	20,000.00
Decrease by	20%
Number of units decreased	4,000.00
Revised units sold	16,000.00
Revised Sell Price per unit	5.00
Sales revenue	80,000.00
Variable cost per unit	3.00
Variable cost	48,000.00
Income Statement	Amount $
Sales revenue	80,000.00
Variable cost	48,000.00
Contribution margin	32,000.00
Fixed costs	8,000.00
Operating profit	24,000.00
Alternative 4
Revised units sold	20,000.00
Revised Sell Price per unit	6.00
Sales revenue	120,000.00
Revised Variable cost per unit	4.00
Variable cost	80,000.00
Income Statement	Amount $
Sales revenue	120,000.00
Variable cost	80,000.00
Contribution margin	40,000.00
Fixed costs	8,000.00
Operating profit	32,000.00
Operating profit is highest in alternative 4. So it should go for alternative 4.