Question

5-a. Refer to the original data. Assume that the company sold 25,500 units last year. The sales manager is convinced that a 149 reduction in the selling price, combined with a $52,000 increase in advertising expenditures would cause annual sales in units increase by 20%. Prepare two contribution format income statements, one showing the results of last year's operations and one showing what the results of operations would be if these changes were made. (Round "Per Unit" answers to 2 decimal places Proposed units Total Per Unit KLEIN COMPANY Contribution Margin Income Statement Last Year 25,500 units Total Per Unit 710,000 $ 27.84 206,000 504,000 420,000 84.000 Sales Variable expenses Contribution margin Fixed expenses Net operating income 0.00 BOL 5-b. Would you recommend that the company do as the sales manager suggests? Yes No < Next > Prev 2 of 8

Answer 1

New Selling Price = $27.84 x 0.86 = $23.95
New Sales units = 25500 x 1.2 = 30600 units

5-a.

	Last Year		Proposed
	25500	units	30600	Units
	Total	Per unit	Total	Per unit
Sales	$                  7,10,000	$            27.84	$      7,32,870	$ 23.95
Variable Expenses	$                  2,06,000	$              8.08	$      2,47,248	$   8.08
Contribution Margin	$                  5,04,000	$            19.76	$      4,85,622	$ 15.87
Fixed Expenses	$                  4,20,000		$      4,72,000
Net Operating Income	$                      84,000		$          13,622

5-b

NO