ABC Inc. manufactures and sell product A. The sale price and costs on a per unit basis, when

20,000 units

per month

are sold, are as follows:

Manufacturing costs:

Direct materials used

$2.00

Direct labour

$1.00

MOH variable

$1.20

MOH fixed

$1.10

Selling expenses

Variable

$4.00

Fixed

$1.10

Sale price per unit

$15

REQUIRED: Each question is independent.

a.

Present the income statement to calculate the

annual

operating income of ABC

Inc.

b.

ABC Inc.'s top management would like to improve profitability. The following

strategy is implemented: decrease sale price by 10% to increase sales volume by

30%. The advertising budget should increase by $20,000.

b1.

Calculate the impact of this strategy on ABC Inc.'s annual contribution

margin.

b2.

Calculate the impact on ABC Inc.'s annual operating income.

c.

ABC Inc. received a special order from Africa Co., headquarter located in

Zimbabwe, for 5,000 units at 6 $ each. The variable selling expenses on this

special order will decrease by 40% and fixed expenses will increase by $5,000.

c1.

Would you recommend to ABC Inc. to accept or reject the special order?

Support your answer with appropriate computations.

c2.

What is the lowest sale price that ABC Inc. should ask from Africa Co.?

Show your computations?

c3.

Provide and explain 3 qualitative factors, ABC Inc. should consider before

making any decision to accept or reject the special order from Africa Co