Contribution Income Statement - The ABC Lighting Company #3

The ABC Lighting Company makes and sells lamps. The company has a factory in Wisconsin and a home office in Chicago.

The following information pertains to ABC for the month of June:

Number of lamps sold 300,000 lamps

Selling Price $10 per lamp

Costs:

Materials $900,000

Boxes for lamps 120,000

Salaries for factory management 40,000

Salaries for home office employees 90,000

Factory cafeteria 22,000

TV Advertising 31,000

Sales Commissions $1.00 per lamp

Heat for the factory 10,000

Rent on the Chicago office building 30,000

Wages for lamp assembly line workers 300,000

Required:

A. Prepare a Contribution Income Statement for the month of June in good form.

B. All scenarios are referenced to the above original data. Show calculations in a comparative contribution income statement.

1. The Vice President of Manufacturing believes that by using higher quality manufacturing materials, which will add $2 per unit more to the manufacturing cost, the company could sell 10% more lamps. Would this be a good decision?
2. The Vice President of Marketing believes that if ABC Lighting bought $300,000 of TV advertising on the Tonight Show, the company could sell 15% more lamps. Would this be a good decision?
3. The Vice President of Sales believes that if the selling price is lowered by $3, the company would sell 10% more lamps. Would this be a good decision?
4. The CEO believes that if the selling price were increased by 10%, the company would make more money even if it resulted in a 10% decline in lamps sold. Is the CEO correct?
5. The CEO believes that if the commission to the sales force is increased by $.50 to $1.50 per lamp, the selling price is lowered by $1, and the TV advertising is increased by $300,000, the company can increase its lamp unit sales by 10%. Would this be a good decision?