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Comfy Seating Company is currently selling 3,500 oversized bean bag chairs a month at a price of $100 per chair. The variable cost of each
Comfy Seating Company is currently selling 3,500 oversized bean bag chairs a month at a price of $100 per chair. The variable cost of each chair sold includes $60 to purchase the bean bag chairs from suppliers and a $4 sales commission. Fixed costs are $6,000 per month. The company is considering making several operational changes and wants to know how the change will impact its operating income. Read the requirements Contribution Margin Income Statement Sales revenue $ 350,000 Variable expenses: Cost of goods sold $ 210,000 Operating expenses 14,000 224,000 Contribution margin 126,000 Fixed expenses 6,000 $ 120,000 Operating income (loss) Requirement 2. Calculate the change in operating income that would result from implementing each of the following independent strategy alternatives. Compare each alternative to the current operating income as you calculated in Requirement 1. Consider each alternative separately. a. Alternative 1: The company believes volume will increase by 15% if salespeople are paid a commission of 10% of the sales price rather than the current $4 per unit. (Use parentheses or a minus sign for an operating loss.) Comfy Seating Company Contribution Margin Income Statement Sales revenue Variable expenses: Cost of goods sold Operating expenses Contribution margin Fixed expenses Operating income (loss)
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