Question

	JenSteel, Inc., had the following results for last year:
					Total		Per Unit
			Sales		$                 2,000,000		$                         40.00
			Variable Costs		1,250,000		25.00
			Contribution Margin		$                    750,000		$                         15.00
			Fixed Costs		400,000
			Operating Income		$                    350,000

Prepare a new income statement for each of the following scenarios. Consider each scenario independently.
	Sales volume increases by 10%
The sales price decreases by 5%. Variable costs per unit decrease by $1.50. A new advertising campaign costing $90,000 increases sales volume by 10%. The sales price decreases to $38, and an additional 6,000 units are sold. Variable costs per unit increase by $3.00, the sales price per unit increases by $4.00, sales volume decreases by 2,000 units, and fixed expenses increase by $15,000.

Answer 1

1.

The sales price decreases by 5%.

Sales	1,900,000.00
Variable Cost	1,250,000.00
Contribution Margin	650,000.00
Fixed costs	400,000.00
Operating Income	250,000.00

2.

Variable costs per unit decrease by $1.50.

Sales	2,000,000.00
Variable Cost	1,175,000.00
Contribution Margin	825,000.00
Fixed costs	400,000.00
Operating Income	425,000.00

3.

A new advertising campaign costing $90,000 increases sales volume by 10%.

Sales	2,200,000.00
Variable Cost	1,375,000.00
Contribution Margin	825,000.00
Fixed costs	490,000.00
Operating Income	335,000.00

4.

The sales price decreases to $38, and an additional 6,000 units are sold.

Sales	2,128,000.00
Variable Cost	1,400,000.00
Contribution Margin	728,000.00
Fixed costs	490,000.00
Operating Income	238,000.00