ABC Inc. manufactures and sells product A. The sale price and costs on a per unit basis, when 20,000 units per month are sold, are as follows:

REQUIRED: Each question is independent.

Present the income statement to calculate the annual operating income of ABC Inc.

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.

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.

Manufacturing costs:* $2.00 $1.00 S1.20 S1.10 Direct materials used Direct labour MOH variable MOH fixed Selling expensese Variable Fixed $4.00 S1.10 Sale price per unit $15