4. Carsons, Inc. produces cutlery sets out of high-quality wood and steel. The company makes a standard cutlery set and a deluxe cutlery set and sells them to retail department stores throughout the country. The standard set sells for $60, and the deluxe set sells for $75. The variable costs associated with each set are given below: Production Costs Sales Commissions (15% Sales Price) Standard $15.00 $9.00 Deluxe $30.00 $11.25 Carsons incurs the following fixed costs each month: Advertising Depreciation Administrative $105,000 $21,700 $63,000 Salespersons are paid on a commission basis to encourage them to be aggressive in their sales efforts. The CFO watches sales commissions carefully and has noted that they have risen steadily over the last year. For this reason, the CFO was shocked to find that even though $ sales have increased, profits for the current month - May - are down substantially from April. Sales, in sets, for the last two months are given below: Sales (# sets) April May Standard 4,000 1,000 Deluxe 2,000 5,000 Total 6,000 6,000 Required: a) Prepare contribution format income statements for April and May. You may use the template provided on the next page. (HINT: Place fixed costs only in the Total column. Do not show percentages for the fixed costs) b) Explain the difference in net operating incomes between the two months, even though the same total number of sets was sold in each month. c) Using April's sales mix, what is the break-even point in total dollar sales at Carson's? d) In May, what was the number of standard sets and number of deluxe sets (each, not total) that needed to be sold to break even? Use the sales mix ratio from May. e) What do you recommend that the CFO does in June to ensure that profits don't drop again? Total Amount % TEMPLATE FOR QUESTION 4a) Carsons, Inc. Income Statement For (Month) Standard Deluxe Amount % Amount % Sales....... Variable expenses: Production ........ Sales commission ....... Total variable expenses. Contribution margin Fixed expenses: Advertising .......... Depreciation ...... Administrative ....... Total fixed expenses..... Net operating income