Delaware Manufacturing Company has been operating at a loss for several years. A management team has assembled to determine what course of action to take next year to reach profitability. They begin by reviewing the most recent income statement (below). Delaware Manufacturing Company Income Statement For the Year Ended December 31 Sales (45,000 units at $15) $675,000 Less cost of goods sold: Direct materials 135,000 Direct labor 117,450 Manufacturing overhead 147,750 400,200 Gross margin 274,800 Less operating expenses Selling expenses Variable Sales commissions 40,500 Shipping 8,100 48,600 Fixed (advertising, salaries) 180,000 Administrative expenses Variable (billing and other) 2,700 Fixed (salaries and other) 72,000 303,300 Net loss $(28,500) All variable expenses vary with the number of units sold, except for sales commissions, which are based on a percentage of sales dollars. Variable manufacturing overhead is forty-five cents per unit. The plant has a capacity of 75,000 units per year. In order to facilitate the work of the management team, you are asked to prepare various spreadsheets and specific computations in Excel. a) First, reformat the income statement in the contribution format. Include both a Total column and Per Unit column in the statement. b) Prepare two income statements in the contribution format (as above) which reflect each of the following independent scenarios: i) The controller would like to reduce the unit selling price by 20%. He believes that this would generate enough sales for the plant to reach capacity. ii) The sales manager would like to increase the selling price by 20%, increase the sales commission to 9% of sales, and increase advertising by $150,000. She believes that this would increase unit sales by one-third. c) Going back to the original data, the team speculates that they might be able to achieve profitability without changing the sales price if they were to reduce the cost of materials used in manufacture. If the direct materials cost were reduced by eighty cents per unit, how many units would have to be sold to break even? To earn a profit of $25,000? d) Again with original data, the team speculates that the problem might lie in inadequate promotion. They want to know by how much they could increase advertising and still allow the company to earn a target profit of 5% of sales on sales of 60,000 units. e) Going back again to the original data, the team considers the possibility of covering losses and/or generating profit through special orders. The company has been approached by an overseas distributor who wants to purchase 10,000 units on a special price basis. (These overseas sales would have no effect on regular domestic business.) There would be no sales commission on these sales; shipping costs would increase by 50%, while variable administrative costs would be reduced by 25%. In addition, a $5,000 insurance fee would have to be paid to cover the goods while in transit. What price would Delaware have to quote on the special order in order to realize a profit of $16,000 on total operations? Would you advise the team to pursue this possibility? Why or why not?