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Ill never understand this accounting stuff, Ricardo Mulliade yelled, waving the income statement he had just received from his accountant in the morning mail. Last month (February), we sold 1,000 stuffed XX Community College mascots and earned $6,850 in operating income. This month (March), when we sold 1,500, I thought wed make $10,275. But his income statement shows an operating income of $12,100! How can I ever make plans if I cant predict my income? Im going to give Binta one last chance to explain this to me, he declared as he picked up the phone to call Binta Jallow, his accountant.

Will you try to explain this operating income thing to me one more time? Ricardo asked Binta. After I saw last months income statement, I thought each mascot we sold generated $6.85 in net income; now this month, each one generates $8.07! There was no change in the price we paid for each mascot, so I dont understand how this happened. If I had known I was going to have $12,100 in operating income, I would have looked more seriously at adding to our product line.

Question: Ricardo is evaluating two options to increase the number of mascots sold next month. First, he believes he can increase sales by advertising in the university newspaper. Ricardo can purchase a package of 12 ads over the next month for a total of $1,200. He believes the ads will increase the number of stuffed mascots sold from 500 to 960. A second option would be to reduce the selling price. Ricardo believes a 10% decrease in the price will result in 1,000 mascots sold. Which plan should Ricardo implement (show calculations)? At what level of sales would he be indifferent between the two plans? (Hint: At what sales level would the income from both plans be the same). (10 pts.) _____