DeAndre Hopkins the newly acquired wide receiver from the Arizona Cardinals started his own dandruff shampoo three years ago.DeAndre Dreads Shampoo and Conditioner has grown each of its three years.

You are faced with two different decisions.

1. Do you sell the shampoo in the 15 oz bottles as you have been doing or do you sell the shampoo in gallons to another company who will do the packaging for you?
2. There is a separate opportunity you have to buy new machinery which will increase your capacity to make both the shampoo and the packaging for your product.It will increase your unit sales by 200,000 units.

For the current year sales are expected to increase in both units and price from their 800,000 units sold at $7.00 price point.Their only size is a 15 oz bottle.

The number of units are expected to increase 14%, and the price per unit is expected to increase to $7.40

Cost of Sales = Shampoo costs + Packaging Costs

Shampoo cost = 44% of your sales dollars

First calculate your number of units, price/unit, sales, and shampoo cost of sales.

The analysis will consist of Sales, Total COS, Total Expenses, and the resulting Net Income.

Sales:

Calculated units and calculated price per unit for unit sales without new machine.

Calculated units + 200,000 units and calculated price per unit with new machine.

If sold by gallons = 135,000 gallons sold without new machine @ $40 per gallon.

If sold by gallons = 160,000 gallons sold with new machine @ $40 per gallon.

Total COS = COS Shampoo + COS Packaging

Total Expenses = Variable expenses + Fixed expenses

COS Shampoo = 4X% of sales dollars (for unit sales)

COS Shampoo = $22.35 per gallon

COS Packaging = $0.72 per unit (for unit sales)

COS Packaging = $0.00 per gallon

Variable Expenses

= $0.70 per unit without new machine

= $0.60 per unit with new machine

= $3.17 per gallon without new machine

= $2.50 per gallon with new machine

Fixed Expenses

= $1,871,100 sold as units without new machine

= 25% decrease if sold as gallons (shampoo only)

= $500,000 increase with new machine from units' amount

= 25% decrease + $300,000 if sold by gallons and new machine

Create basic income statements showing the following.

1. Sold by units without new machine purchase
2. Sold by gallons without new machine purchase
3. Sold by units with new machine purchase
4. Sold by gallons with new machine purchase
5. How would advise DeAndre on his two decisions