Question

In: Accounting

Decor Seating Company is currently selling 1,400 oversized bean bag chairs a month at a price...

Decor Seating Company is currently selling 1,400

oversized bean bag chairs a month at a price of $75 per chair. The variable cost of each chair sold includes $45 to purchase the bean bag chairs from suppliers and a $22 sales commission. Fixed costs are $6,000 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 $22 per unit.

b.

Alternative​ 2: The company believes that spending an additional $4,000 on advertising would increase sales volume by 6​%.

c.

Alternative​ 3: The company is considering raising the selling price to $89​, but believes volume would drop by 15​% as a result.

d.

Alternative​ 4: The company would like to source the product from domestic suppliers who charge $13 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 $13 per unit. In​ addition, the company would have to spend an additional $7,000 in marketing costs to get the word out to potential customers of this change.

Solutions

Expert Solution

In case of any doubts or Issues, Please comment below


Related Solutions

10) Benny's Custom Chairs produces inexpensive leather chairs. The average selling price for one of the...
10) Benny's Custom Chairs produces inexpensive leather chairs. The average selling price for one of the chairs is $500. The variable cost per chair is $250. Benny's has average fixed costs per year of $500,000. What is the break-even point in units? What is the break-even point in dollar sales? What would be the operating profit or loss associated with the production and sale of (1) 2,000 chairs, (2) 4,000 chairs?
A three-month call option on a stock is currently selling at $5. The current stock price...
A three-month call option on a stock is currently selling at $5. The current stock price is $65, the strike price for the option is $60. The risk - free rate is 10% p.a. for all maturities. a.) Is there any opportunity for an arbitrageur? Explain b.) Show the strategy how an arbitrageur can obtain the arbitrage profit. What will the profit be? Show workings
A four-month call option with $60 strike price is currently selling at $5. The underlying stock...
A four-month call option with $60 strike price is currently selling at $5. The underlying stock price is $59. The risk-free rate is 12% p.a. The put with same maturity and strike price is selling at $3.5. Can an arbitrageur make riskless profit? If ‘YES’ what strategies an arbitrageur should take to make this profit? If your answer above is ‘YES’, calculate the arbitrage profit by completing the following table showing strategy (i.e., whether buying or selling put/call portfolio); position,...
A one-month European call option on a non-dividend-paying stock is currently selling for$2.50. The stock price...
A one-month European call option on a non-dividend-paying stock is currently selling for$2.50. The stock price is $45, the strike price is $50, and the risk-free interest rate is 5% per annum. What opportunities are there for an arbitrageur?
Currently the tea market is in equilibrium at price $4.00 per bag of tea and 100,000...
Currently the tea market is in equilibrium at price $4.00 per bag of tea and 100,000 bags of tea. Now, suppose the price of coffee decreases by 10%. This will lead to a 25% change in the equilibrium price of tea. The Price Elasticity of Demand (Ed) for Tea has been calculated to be 1.20 and the Price Elasticity of Supply for Tea has been calculated to be 0.90. Answer the following questions based on these events and facts. (a)...
XYZ Company has currently $2 million shares of common stock outstanding, and the selling price of...
XYZ Company has currently $2 million shares of common stock outstanding, and the selling price of each stock is $25. They want to extend $3 Million through bond issuance at 10% interest rate. Financial analyst estimated $2 Million EBIT. The marginal tax rate is 35%. a) What would be the earning per share?
Birch Company normally produces and sells 47,000 units of RG-6 each month. The selling price is...
Birch Company normally produces and sells 47,000 units of RG-6 each month. The selling price is $20 per unit, variable costs are $10 per unit, fixed manufacturing overhead costs total $170,000 per month, and fixed selling costs total $36,000 per month. Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Company’s sales to temporarily drop to only 12,000 units per month. Birch Company estimates that the strikes will last for two months, after...
Birch Company normally produces and sells 41,000 units of RG-6 each month. The selling price is...
Birch Company normally produces and sells 41,000 units of RG-6 each month. The selling price is $30 per unit, variable costs are $10 per unit, fixed manufacturing overhead costs total $160,000 per month, and fixed selling costs total $40,000 per month. Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Company’s sales to temporarily drop to only 11,000 units per month. Birch Company estimates that the strikes will last for two months, after...
Birch Company normally produces and sells 45,000 units of RG-6 each month. The selling price is...
Birch Company normally produces and sells 45,000 units of RG-6 each month. The selling price is $20 per unit, variable costs are $10 per unit, fixed manufacturing overhead costs total $200,000 per month, and fixed selling costs total $50,000 per month. Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Company’s sales to temporarily drop to only 12,000 units per month. Birch Company estimates that the strikes will last for two months, after...
Birch Company normally produces and sells 47,000 units of RG-6 each month. The selling price is...
Birch Company normally produces and sells 47,000 units of RG-6 each month. The selling price is $20 per unit, variable costs are $10 per unit, fixed manufacturing overhead costs total $200,000 per month, and fixed selling costs total $48,000 per month. Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Company’s sales to temporarily drop to only 10,000 units per month. Birch Company estimates that the strikes will last for two months, after...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT