December 2019 , the president expected that 2020 sales would amount to 295,000 units. The alternative marketing plan is presented below: 2020 Marketing Plan: "At the present time, we sell the product to retailers for $8.00 per wallet. Retailers generally charge the consumers between $9 and $9.50. If we cut our selling price to retailers to $7.50, I expect that the product will do much better. Their increased markup will give them the incentive to display our product more prominently and to promote it more vigorously to customers. We should support this strategy by supplying more promotional materials to retailers, which I expect would be an increase of $5,500 in Advertising and Promotion costs. Based on the price cut and the increase in advertising and promotion, I expect that we will be able to boost our sales volume by 18 percent to 348,100 units in 2020 ." Jackson received cost data from the company's CFO. The CFO expects that the cost data below are also reliable estimates for 2020 for a production volume up to 400,000 units. Beyond 400,000 units, the company would have to rent additional machines (with a capacity of 100,000 units each), which would increase fixed manufacturing overhead costs by $45,000 per machine. 2019 Cost Data Manufacturing Costs for wallets (based on production volume of 295,000 units): Selling and Administrative Costs for wallets (based on sales volume of 295,000 units): Fixed Selling and Admin Expenses: $250,000 Using the information on page 1, answer the following questions. Include all costs (manufacturing costs and selling and administrative costs) in your calculations. 1. Using the current information from 2019: a. Prepare a CVP Income Statement (total and per unit) for 2019 using the current production and sales volume (295,000 wallets) and the 2019 cost data, assuming no changes to selling price or costs. b. Using the above CVP Income Statement, determine the Company's contribution margin ratio for 2019. c. Using the 2019 cost data, determine the 2019 break-even point in number of wallets for the company, assuming no changes to selling price or costs. For full credit, please show all of portions of your calculations. 2. Assuming the selling price and cost changes in the Marketing Plan are adopted: a. prepare a CVP Income Statement (total and per unit) for 2020, assuming sales and production increase by 18% as outlined in the Marketing Plan. b. Using the above CVP Income Statement, determine the Company's Contribution Margin Ratio for 2020. c. Assuming the selling price and cost changes in the Marketing Plan are adopted, determine the break-even point in number of wallets for the company in 2020. For full credit, please show the elements of your computations. Round to the nearest next whole unit. 3. Assuming the selling price and cost changes in the Marketing Plan are adopted, determine the number of wallets the company would need to sell in 2020 in order to earn $200,000 in profit. For full credit, please show the elements of your computations. 4. The company has been approached by the government, which is seeking to buy 170,000 wallets for its charity campaign in 2020 . The proposed government contract states that the government would pay Aerotek a price of $4.25 per wallet. If Aerotek decides to accept this special order, they would avoid packaging costs for this contract as well as all variable selling and administrative costs. The company's capacity is limited to only 400,000 units. If they accept the government contract, they will need to increase their capacity by renting an additional machine. Refer to page 1 for the company's estimated cost data and additional machine rental cost. Assume that Aerotek does not adopt the proposed Marketing Plan and that the company's production and sales level without the government contract is expected to be 295,000 wallets for 2020 . - Prepare an analysis below to determine the incremental net income or net loss that Aerotek would recognize if they accept this special order. 5. Prepare a Memo to Management explaining whether Aerotek should accept or reject the government contract. Discuss both qualitative and quantitative considerations. December 2019 , the president expected that 2020 sales would amount to 295,000 units. The alternative marketing plan is presented below: 2020 Marketing Plan: "At the present time, we sell the product to retailers for $8.00 per wallet. Retailers generally charge the consumers between $9 and $9.50. If we cut our selling price to retailers to $7.50, I expect that the product will do much better. Their increased markup will give them the incentive to display our product more prominently and to promote it more vigorously to customers. We should support this strategy by supplying more promotional materials to retailers, which I expect would be an increase of $5,500 in Advertising and Promotion costs. Based on the price cut and the increase in advertising and promotion, I expect that we will be able to boost our sales volume by 18 percent to 348,100 units in 2020 ." Jackson received cost data from the company's CFO. The CFO expects that the cost data below are also reliable estimates for 2020 for a production volume up to 400,000 units. Beyond 400,000 units, the company would have to rent additional machines (with a capacity of 100,000 units each), which would increase fixed manufacturing overhead costs by $45,000 per machine. 2019 Cost Data Manufacturing Costs for wallets (based on production volume of 295,000 units): Selling and Administrative Costs for wallets (based on sales volume of 295,000 units): Fixed Selling and Admin Expenses: $250,000 Using the information on page 1, answer the following questions. Include all costs (manufacturing costs and selling and administrative costs) in your calculations. 1. Using the current information from 2019: a. Prepare a CVP Income Statement (total and per unit) for 2019 using the current production and sales volume (295,000 wallets) and the 2019 cost data, assuming no changes to selling price or costs. b. Using the above CVP Income Statement, determine the Company's contribution margin ratio for 2019. c. Using the 2019 cost data, determine the 2019 break-even point in number of wallets for the company, assuming no changes to selling price or costs. For full credit, please show all of portions of your calculations. 2. Assuming the selling price and cost changes in the Marketing Plan are adopted: a. prepare a CVP Income Statement (total and per unit) for 2020, assuming sales and production increase by 18% as outlined in the Marketing Plan. b. Using the above CVP Income Statement, determine the Company's Contribution Margin Ratio for 2020. c. Assuming the selling price and cost changes in the Marketing Plan are adopted, determine the break-even point in number of wallets for the company in 2020. For full credit, please show the elements of your computations. Round to the nearest next whole unit. 3. Assuming the selling price and cost changes in the Marketing Plan are adopted, determine the number of wallets the company would need to sell in 2020 in order to earn $200,000 in profit. For full credit, please show the elements of your computations. 4. The company has been approached by the government, which is seeking to buy 170,000 wallets for its charity campaign in 2020 . The proposed government contract states that the government would pay Aerotek a price of $4.25 per wallet. If Aerotek decides to accept this special order, they would avoid packaging costs for this contract as well as all variable selling and administrative costs. The company's capacity is limited to only 400,000 units. If they accept the government contract, they will need to increase their capacity by renting an additional machine. Refer to page 1 for the company's estimated cost data and additional machine rental cost. Assume that Aerotek does not adopt the proposed Marketing Plan and that the company's production and sales level without the government contract is expected to be 295,000 wallets for 2020 . - Prepare an analysis below to determine the incremental net income or net loss that Aerotek would recognize if they accept this special order. 5. Prepare a Memo to Management explaining whether Aerotek should accept or reject the government contract. Discuss both qualitative and quantitative considerations