Each question refers to the same initial data. Treat each question separately. Ignore income taxes. Assume no beginning or ending inventories. Calculations and backup should be completed and submitted in Excel. Use proper Contribution Income Statement formatting. Analysis can either be typed into cells in Excel (formatted to be easily legible) or typed into a text box in Excel. Data for all questions: Sound Eleven Corporation produces electric guitars. Their High Volume style guitars are mainly used for students and guitar players looking for an inexpensive practice guitar. The cost of manufacturing and marketing their guitars, at their normal factory volume of 5,000 High Volume guitars per month, is shown in the table below. These guitars sell for $350 each. (Note: 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.)

Question 1: What is the break-even point? A) In units? B) In sales dollars?

Question 2: A nearby music school has offered to purchase 3,000 guitars (one time) if the price was lowered to $300 per guitar. Sound Elevens maximum capacity is 6,000 units. A) Based on the cost data provided, what would be the impact of the price decrease on sales, costs, and operating income if Sound Eleven accepted this sale? B) Do you think Sound Eleven should accept this sale? Support your decision with evidence and analysis.

Question 3: Research has shown that there is a need for a higher quality guitar on the market. Sound Eleven would be able to produce a higher quality guitar, called the Turn it Up on their existing equipment if they upgraded the wood and strings at an additional cost of $25 per guitar. However, they would need a new paint booth to be able to produce the better paint job required for the Turn it Up guitar. This would increase fixed overhead costs by $60,000 per month (still based on normal production volume of 5,000 units). Maximum production for both types of guitars together would still be 6,000 units because the majority of the same equipment would be used. The Turn it Up guitars would sell for $450 each. A) What would be the break-even point if String Thing only sold Turn it Up guitars? B) Create a contribution income statement for a month in which String Thing sold 3,500 High Volume guitars, and 2,000 Turn it Up guitars. C) Explain, in your own words, the difference between fixed and variable costs and how they impact profitability.

Unit Manufacturing Costs: Variable Materials Variable Labor 30 40 25 Total Unit Manufacturing Costs: 145 Unit Marketi:Costs Variable Marketing Costs Fixed Marketing Costs 45 40 Total Unit Marketing Costs: 85 Total Unit Costs: 230