11. Neil believes that the quality of the product could be improved by spending per unit on better raw materials. The higher quality raw material will require improvements on the current manufacturing machinery, increasing fixed man verhead $75,000 per year. Neil also believes that increasing fixed selling ex adding an advertising campaign at a cost of $25,000 per year will increase sa selling price per unit of Alph will remain at $47.00 per unit. Neil estimatest volume would increase 21.5%. Shipping costs will remain 20% of variable se expense. Discuss the effect Neil's plan will have on net operating income, the point, and the degree of operating leverage of Xanadu Corp. 12. Geddy believes that sales volume can be increased by reducing some expense increasing advertising and promotional campaigns. Geddx proposed the follo alternative to Neil's plan: (1) Reduce variable selling expenses by 20%, (2) i commissions by $1.50 per unit, (3) increase fixed selling expenses by $60,00 get products to customers faster, shipping costs will increase to 30% of varia expense. The selling price will remain $47 per unit. Geddy is confident that to will increase sales by 21.5%. Discuss the effect Geddys plan would have on operating income, the breakeven point and the degree of operating leverage Corneration 13. Under each scenario, what impact would a 30% decline in sales have on operating income? 14. Which option, if either, would you recommend to Xanadu Corporation? Provide a well thought out explanation for your selection. 11. Neil believes that the quality of the product could be improved by spending per unit on better raw materials. The higher quality raw material will require improvements on the current manufacturing machinery, increasing fixed man verhead $75,000 per year. Neil also believes that increasing fixed selling ex adding an advertising campaign at a cost of $25,000 per year will increase sa selling price per unit of Alph will remain at $47.00 per unit. Neil estimatest volume would increase 21.5%. Shipping costs will remain 20% of variable se expense. Discuss the effect Neil's plan will have on net operating income, the point, and the degree of operating leverage of Xanadu Corp. 12. Geddy believes that sales volume can be increased by reducing some expense increasing advertising and promotional campaigns. Geddx proposed the follo alternative to Neil's plan: (1) Reduce variable selling expenses by 20%, (2) i commissions by $1.50 per unit, (3) increase fixed selling expenses by $60,00 get products to customers faster, shipping costs will increase to 30% of varia expense. The selling price will remain $47 per unit. Geddy is confident that to will increase sales by 21.5%. Discuss the effect Geddys plan would have on operating income, the breakeven point and the degree of operating leverage Corneration 13. Under each scenario, what impact would a 30% decline in sales have on operating income? 14. Which option, if either, would you recommend to Xanadu Corporation? Provide a well thought out explanation for your selection
