Data: Alpine, Inc., has been experiencing losses for some time, as shown by its most recent income statement:
For the year ended June 30, 2011
Sales (40,000 Units at $12) $480,000
Less: Cost of Goods Sold
Direct Materials $120,000
Direct Labor 65,600
Manufacturing Overhead 90,000 275,600
Gross Margin 204,400
Less: Operating expenses:
Sales Commissions $38,400
Shipping 14,000 52,400
Fixed (Advertising, salaries) 110,000
Variable (billing, other) 3,200
Fixed (salaries, other) 85,000 250,600
Net Loss $(46,200)
All variable expenses in the company vary in terms of units sold, except for sales commissions, which are based on sales dollars. Variable manufacturing overhead is 50 cents per unit. The company’s plant has a capacity of 70,000 units.
Management is particularly disappointed with 2011’s operating results. Several possible courses of action are being studied to determine what should be done to make 2012 profitable.
2. In an effort to make 2012 profitable, Micah Patdu, the president is considering two proposals prepared by members of her staff:
a. Jon Michael, the sales manager would like to reduce the unit selling price by 25 percent. He is certain that this would fill the plant to capacity.
b. Mary Wilkinson, the executive vice president would like to increase the unit selling price by 25 percent, increase the sales commissions to 12 percent of sales, and increase advertising by $90,000. Based on experience in another company, she is confident this would trigger a 50 percent increase in unit sales.
Prepare two contribution income statements, one showing what profits would be under Jon Michael’s proposal and one showing what profits would be under Mary Wilkinson’s proposal. On each statement, include both total and per unit columns (do not show per unit data for fixed costs) 15 pts. _____
Dear Student Please find... View the full answer