Reference no: EM132791242

The condensed income statement of Western Limited (WL) for 2019 is shown below:

Western Limited

Income Statement for the Year Ended December 31, 2019

Sales - 240,000 units $1,200,000
COGS 800.000
Gross profit 400,000
Selling expenses (280,000)
Administrative expenses (150,000)
Loss (30,0001

Cost data has revealed that 75% of the COGS is variable, 42% of the selling expenses are variable and 40% of the administrative expenses are variable.

Two approaches to increasing the bottom line have been received. One from the Production Manager and one from the Marketing Manager.

Production Manager

1. Spend $0.25 more per unit on better materials.
2. We can offset this additional cost by increasing the selling price per unit by $0.25.
3. However, because we are producing a better product, we can sell 25% more in volume.

Marketing Manager

1. Increase variable selling expenses by $0.05 per unit
2. Produce a radio advertising program costing $32,640 per year
3. Decrease the selling price per unit by $0.25
4. These measures will increase volume by 60%

Required

Problem 1: Which approach should WL implement? Show your calculations and explain your answer.