Consider the following data for Jasmine & Aladdin Carpets Inc.

Per Unit Percent

Sales Price $500 100

Less: variable costs 300 60

Contribution margin 200 40

Fixed costs $70,000

Currently sales are $200,000 (400 units).

Required:

The following 3 situations are independent of one another.

ALL CALCULATIONS MUST BE SHOWN

1. The sales manager feels that an increase of $20,000 in fixed costs will increase sales by 15%. Should the change be made?
2. Management is considering increasing the quality of its carpets at an additional cost of $20 per carpet. They feel that this will increase sales by 160 carpets. Should Aladdin increase the quality of their carpets?
3. The workforce has approached Aladdin to change them from a flat salary of $12,000 per month to a sales commission of $30 per carpet which could increase sales by 15%. Should Aladdin agree with their proposal?