Group Assignment Effect of changes in fixed and variable cost on profitability In a month when it sold 200 units of product, Queen Manufacturing Company (QMC) produced the following internal income statement.

Revenue $8,000 Variable Costs (4,800)

Contribution Margin 3,200 Fixed Costs (2,400)

Net Income $ 800 QMC has the opportunity to alter its operations in one of the following ways:

1. Increasing fixed advertising costs by $1,600, thereby increasing sales by 120 units.

2. Lowering commissions paid to the sales staff by $8 per unit, thereby reducing sales by 10 units.

3. Decreasing fixed inventory holding cost by $800, thereby decreasing sales by 20 units.

Required

a. The instructor will divide the class into groups and then organize the groups into two sections. For a large class (12 or more groups), four sections may be necessary. At least three groups in each section are needed. Having more groups in one section than another section is acceptable because offsetting advantages and disadvantages exist. Having more groups is advantageous because more people will work on the task but is disadvantageous because having more people complicates communication.

Group Task The sections are to compete with each other to see which section can identify the most profitable alternative in the shortest period of time. No instruction is provided regarding how the sections are to proceed with the task. In other words, each section is required to organize itself with respect to how to accomplish the task of selecting the best alternative. A total quality management (TQM) constraint is imposed that requires zero defects. A section that turns in a wrong answer is disqualified. Once an answer has been submitted to the instructor, it cannot be changed. Sections continue to turn in answers until all sections have submitted a response. The first section to submit the correct answer wins the competition.

b. If any section submits a wrong answer, the instructor or a spokesperson from the winning group should explain how the right answer was determined.

c. Discuss the dynamics of group interaction. How was the work organized? How was leadership established?