Data: Alpine, Inc., has been experiencing losses for some time, as shown by its most recent income statement:

ALPINE, INC.

Income Statement

For the year ended June 30, 2016

Sales (40,000 Units at $12) $480,000

Less: Cost of Goods Sold

Direct Materials $120,000

Direct Labor 65,600

Manufacturing Overhead 90,000 275,600

Gross Margin 204,400

Less: Operating expenses:

Selling expenses:

Variable:

Sales Commissions $38,400

Shipping 14,000 52,400

Fixed (Advertising, salaries) 110,000

Administrative expenses:

Variable (billing, other) 3,200

Fixed (salaries, other) 85,000 250,600

Net Loss $(46,200)

All variable expenses in the company vary in terms of units sold, except for sales commissions, which are based on sales dollars. Variable manufacturing overhead is 50 cents per unit. The companys plant has a capacity of 70,000 units.

Management is particularly disappointed with 2016s operating results. Several possible courses of action are being studied to determine what should be done to make 2017 profitable.

REQUIRED:

1. Redo Alpine, Inc.s 2016 Income Statement in the contribution format. Show both a total column and a per unit column on your statement.

1. In an effort to make 2017 profitable, Micah Patdu, the president is considering two proposals prepared by members of her staff:

Jon Michael, the sales manager would like to reduce the unit selling price by 25 percent. He is certain that this would fill the plant to capacity.

Mary Wilkinson, the executive vice president would like to increase the unit selling price by 25 percent, increase the sales commissions to 12 percent of sales, and increase advertising by $90,000. Based on experience in another company, she is confident this would trigger a 50 percent increase in unit sales.

Prepare two contribution income statements, one showing what profits would be under Jon Michaels proposal and one showing what profits would be under Mary Wilkinsons proposal. On each statement, include both total and per unit columns (do not show per unit data for fixed costs)

1. Refer to the original data. Micah Patdu, the president thinks it would be unwise to change the selling price. Instead, she wants to use less costly materials in manufacturing units of product, thereby reducing costs by $1.73 per unit. How many units would have to be sold during 2017 to earn a target profit of $59,000 for the year?

1. Refer to the original data. Alpine, Inc.s advertising agency thinks that the problem lies in inadequate promotion. By how much can advertising be increased and still allow the company to earn a target return of 4.5 percent on sales of 60,000 units?

1. Refer to the original data. The company has been approached by an overseas distributor who wants to purchase 15,000 units on a special price basis. There would be no sales commission on these units. However, shipping costs would increase by 80 percent, and variable administrative costs would be reduced by 50 percent. Alpine, Inc., would have to pay a foreign import duty of $3,150 on behalf of the overseas distributor in order to get the goods into the country. Given these data, what unit price would have to be quoted on the 15,000 units by Alpine, Inc., to allow the company to earn a profit of $18,000 in the year 2016 on total operations? Regular business would not be disturbed by this special order.