Bland and Strand compete in the same market. The following budgeted income statements illustrate their cost structures: 

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Required

a. Assume that Bland can lure all 100 customers away from Strand by lowering its sales price to $60 per customer. Reconstruct Bland’s income statement based on 200 customers.

b. Assume that Strand can lure all 100 customers away from Bland by lowering its sales price to $60 per customer. Reconstruct Strand’s income statement based on 200 customers.

c. Why does the price-cutting strategy increase Bland’s profits but result in a net loss for Strand? 

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Income Statements Company Bland Strand Number of customers (a) 100 100 $10,000 NA Sales revenue (a x $100) Variable cost (a x $64) $10,000 (6,400) Contribution margin 10,000 (6,400) $ 3,600 3,600 N/A Fixed costs $ 3,600 Net income