Data for all questions: TrailPacker produces rugged backpacks for outdoor sports (hiking, rock climbing, etc.) Their backpacks are sold at many specialty outdoor stores across the country. The cost of manufacturing and marketing their backpacks, at their normal factory volume of 15,000 backpacks per month, is shown in the table below. TrailPacker sells these backpacks for $50 each. TrailPacker is making a small profit, but they would prefer to increase their Operating Income.

Hint: Fixed costs are shown on a per-unit basis in the table based on normal volume. However, fixed costs as a total do not change when volume changes, so you will need to determine total fixed costs first.

Data for all Questions:

TrailPacker is thinking of cutting costs by using a different fabric (raw material) supplier. Their variable material costs would decrease by 25% (only variable material costs not all variable costs). The quality of the fabric is lower, so TrailPacker estimates that their additional fixed scrap costs related to the fabric quality would be $15,000 per month. They would not change the pricing of their backpacks.

Note: Use the initial data provided for all questions. Ignore the special sale and aluminum frame data from Parts 2 & 3.

A) Prepare a revised monthly Contribution Margin Income Statement to include the revenues, costs and profits of using the different raw material (fabric) supplier.

B) If their sales end up decreasing because of the change in quality, how much of a reduction in sales (dollars and units) could TrailPacker handle and still keep their net operating income the same as before the supplier change? Show your data in a Contribution Margin Income Statement.