Baby Center Ltd Baby Center Ltd. makes portable high chairs. The high chair is generally marketed through exclusive retailers located in upscale shopping malls. In late 2018, Diana Suarez, the president of the company was considering an alternative marketing plan for 2019 that was presented to her by Bill Duffy, the marketing manager. Based on sales from January through October 2018, Diana expected that 2019 sales would amount to 20,000 units. Bill's alternative marketing plan is presented below 2019 Marketing Plan: "At the present time, we sell the product to retailers for $64.00 per high chair. Retailers generally charge the consumers between $74.99 and $79.99. If we cut our selling price to retailers to $62.00, I expect that the product will do much better. Their increased markup will give them the incentive to display our product more prominently and to promote it more vigorously to customers. We should support this strategy by supplying more promotional materials to retailers, which I expect would be an increase of $4,400 in Advertising and Promotion costs. Based on the price cut and the increase in Advertising and Promotion, I expect that we will be able to boost our sales volume by 25 percent to 25,000 units in 2019 Diana received cost data from the company's CFO, Don Capp. Don expects that the cost data below are also reliable estimates for 2019 for a production volume up to 30,000 units. Beyond 30,000 units the company would have to rent additional machines (with a capacity of 10,000 units each), which would increase fixed manufacturing overhead costs by $12,000 per machine. 2018 Cost Data Manufacturing Costs for high chairs (based on production volume of 20,000 units): Direct Materials $24 per unit $15 per hour (each worker can make 2 units in 1 hour) $3.25 per unit $4 per unit $110,000 Direct Labor Packaging Variable Manufacturing Overhead Fixed Manufacturing Overhead Selling and Administrative Costs for high chairs (based on sales volume of 20,000 units): Sales Commissions $6.75 per unit $4.00 per unit $18,000 $8,000 Shipping Costs Advertising and Promotion (fixed) Fixed Selling and Admin Expenses 4. Assuming the selling price and cost changes in the Marketing Plan are adopted, prepare a CVP Income Statement for 2019, assuming sales and production increase by 25% as Marketing Plan. outlined in the Baby Center Ltd CVP Income Statement For the Year Ended December 31, 2019 Total Per Unit 5500 na net Income 1alco 5. Answer the following two questions at is the change in Net Income from 2018 that Baby Center would realize if they adopted the marketing plan in 2019? a. Wh b. Should Baby Center adopt the marketing plan for 2019? Using the CVP Income Statement prepared in #4 above, determine the Company's contribution margin ratio for 2019. Round to zero decimal places
