Question

Modest Seating Company is currently selling 1,500 oversized bean bag chairs a month at a price of $78 per chair. The variable cost of each chair sold includes $30 to purchase the bean bag chairs from suppliers and a ​$2 sales commission. Fixed costs are $14,000 per month. The company is considering making several operational changes and wants to know how the change will impact its operating income.

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 12​% of the sales price rather than the current $2 per unit.

b. Alternative​ 2: The company believes that spending an additional $8,000 on advertising would increase sales volume by 9%.

c. Alternative​ 3: The company is considering raising the selling price to $98​, but believes volume would drop by 30​% as a result.

d. Alternative​ 4: The company would like to source the product from domestic suppliers who charge $11 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 $12 per unit. In​ addition, the company would have to spend an additional $8,000 in marketing costs to get the word out to potential customers of this change.

The answers are below, I just need to see the work for them

Requirement 1. Prepare the company's current contribution margin income statement. (Use parentheses or a minus sign for an operating loss.) 117,000 Modest Seating Company Contribution Margin Income Statement Sales revenue $ Variable expenses: Cost of goods sold $ 45,000 Operating expenses 3,000 Contribution margin 48,000 Fixed expenses 69,000 14,000 55,000 $ Operating income (loss)

Answer 1

Req 1) Contribution margin Income Statement
Sales revenue		117000
Variable expenses:
COGS	45000
Operating expenses	3000	48000
Contribution margin		69000
Fixed expenses		14000
Operating Income (loss)		55000
Req 2)
a) Alt 1)
Contribution margin Income Statement
Sales revenue		140400		1500*1.2*78
Variable expenses:
COGS	54000			1500*1.2*30
Operating expenses	16848	70848		140400*12%
Contribution margin		69552
Fixed expenses		14000
Operating Income (loss)		55552
OI from implementing these changes would increase by $552 from Req 1.
b) Alt 2)
Contribution margin Income Statement
Sales revenue		127530		1500*1.09*78
Variable expenses:
COGS	49050			1500*1.09*30
Operating expenses	3270	52320		1500*1.09*2
Contribution margin		75210
Fixed expenses		22000		14000+8000
Operating Income (loss)		53210
OI from implementing these changes would decrease by $1790 from Req 1.
c) Alt 3)
Contribution margin Income Statement
Sales revenue		102900		1500*0.7*98
Variable expenses:
COGS	31500			1500*0.7*30
Operating expenses	2100	33600		1500*0.7*2
Contribution margin		69300
Fixed expenses		14000
Operating Income (loss)		55300
OI from implementing these changes would increase by $300 from Req 1.
d) Alt 4)
Contribution margin Income Statement
Sales revenue		162000		1500*1.2*90
Variable expenses:
COGS	73800			1500*1.2*41
Operating expenses	3600	77400		1500*1.2*2
Contribution margin		84600
Fixed expenses		22000		14000+8000
Operating Income (loss)		62600
OI from implementing these changes would increase by $7600 from Req 1.