B E F G H 1 The following monthly data are available for the Gilligan Company and its only product, Product ECS 2 3 Sales units 400 4 5 6 7 8 9 Sales $113.300 Variable expenses 44,000 Contribution Margin 69,300 Fixed Expenses 52,800 Operating Income (Loss) 16,500 10 11. Apply the INCREMENTAL APPROACH (Also Known As the CONTRIBUTION MARGIN APPROACH) to 12 calculate whether the operating income would increase or decrease) for each of the following four independent 13 considerations from management? If operating income will decrease, please ensure your answer is a negative. 14 15 (a) An anticipated new business increasing the competition for our prochact might decrease sales by 10% Decrease sales by 10% 17 A B D E H 20 21 Increase (decrease) in operating income 22 a (b) Management is contemplating the use of plastic gearing rather than metal gearing in Product ECS. This change would recluce variable costs by $15. The company's marketing manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 350 units per month Reduce variable costs per unit by $ 15 Decline in sales to a level of 350 23 24 25 26 27 28 29 30 Increase (decrease) in operating income 31 32 (e) Management wants to increase sales and feels that this can be done by reducing the selling price by $25 per unit and increasing the advertising budget by $20,000 per month. Management believes that these actions will increase unit sales by 50%. 33 Reduce selling price per unit by $ 25 34 Increasing monthly advertising budget by $ 20,000 35 Increase unit sales by 50% 38 39 40 Increase (decrease) in operating income 41 42 43 (d) Management wants to automate a portion of the production process for Product ECS. The new equipment would reduce direct labour costs by $20 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000. Management believes that the new equipment will increase the reliability of Product ECS, thus resulting in an increase in monthly sales of 12%. Reduce labour costs per unit by $ 20 Monthly rental cost for the new robotic equipment of $ 10,000 Increase in monthly sales of 12% 45 46