Reference no: EM132470594
Assume that a company has forecasted 5,800 units sold, has an average selling price of $25.00 per unit, unit variable cost of $10.00 per unit, and a total fixed cost equal to $84,000. Using the template provided, identify the Contribution-format Income Statement for the following two alternatives:
Question a. High Quality: Raise the average Selling Price to $26.00 per unit. Raise the Unit Variable Cost to $12.00 per unit. Total Fixed Costs remain at $84,000. Sales forecast increases to 6,380 units
Question b. Low Price: Lower the average Selling Price to $22.50 per unit. Lower the Unit Variable Cost to $9.50 per unit. Total Fixed Costs remain at $84,000. Sales forecast increases to 6,960 units
Question c. Calculate Margin of safety for parts a. and b. above (as a percentage, in units sold, and in sales revenue terms)
Question d. Calculate Operating Leverage and Degree of Operating Leverage for parts a. & b. above
Question e. Compare the short-term profit between the High Quality and Low Price
Question f. Discuss the potential long-term implications of temporarily moving from status quo to either the High Quality or Low Price Make a recommendation for the whether to continue using the status quo alternative, the High Quality alternative, or the Low Price alternative
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