Consider the following data for Aladdin Carpets Limited:

Per Unit Percent

Sales Price $250 100

Less: variable costs 150 60

Contribution margin 100 40

Fixed costs $35,000

Currently sales are $100,000 (400 units).

Required:

ALL CALCULATIONS MUST BE SHOWN

1. Prepare a proper contribution income statement for the year ended December 31, 3013.

DO THE FOLLOWING TWO INDEPENDENT SITUATIONS

1. Management is considering increasing the quality of its carpets at an additional cost of $15 per carpet. They feel that this will increase sales by 180 carpets if the advertising budget is increased by $15,000. Should Aladdin increase the quality of their carpets?
2. The workforce has approached Aladdin to change them from a flat salary of $6000 per month to a sales commission of $25 per carpet which could increase sales by 15%. Should Aladdin agree with their proposal?