Each question refers to the same initial data. Treat each Part individually. 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 example below. Analysis can either be typed into cells in Excel (formatted to be easily legible) or typed into a text box in Excel. One Excel file is to be submitted for this case study.

Data for all questions: Spatula City produces aluminum spatulas. Their spatulas are sold at many department stores across the country. The cost of manufacturing and marketing their spatulas, at their normal factory volume of 50,000 spatulas per month, is shown in the table below. These spatulas sell for $10 each. Spatula City is making a small profit, but would prefer to increase their Operating Income.

Hint: 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.

Data for all Questions:

Questions:

Part 3:

Spatula City is thinking of increasing sales by offering spatulas with a non-stick coating. The investment needed to coat their spatulas would increase fixed overhead costs by $30,000 per month. The variable materials cost (only variable material costs not all variable costs) would increase by $0.50 per spatula. Maximum production for the spatulas would remain 50,000 units because the same production lines would be used. Market research estimates that the coated spatulas would sell for $11 each, and volume would increase 25%.

A) Prepare a revised Contribution Margin Income Statement to include the revenues, costs and income if Spatula City chose to manufacture and sell coated spatulas instead of their regular spatulas.

B) What is the new break-even point in units for the coated spatulas?

C) What is the new break-even point in sales dollars for the coated spatulas?

D) If volume did not increase when making the coated spatulas (stayed the same as original monthly volume), is Spatula City better off producing coated spatulas or their basic aluminum spatulas? Support your answer with data.

Part 4:

Spatula City is thinking of cutting costs by using a different raw material supplier. Their variable material costs would decrease by 30% (only variable material costs not all variable costs). The quality of the metal is lower, so Spatula City estimates that their additional fixed scrap costs related to the metal quality would be $20,000 per month. They would not change the pricing of their spatulas.

Note: Use the initial data provided for all questions. Ignore the coated spatulas and special sale data from other questions.

A) Prepare a revised Contribution Margin Income Statement to include the revenues, costs and profits of using the different raw material supplier.

B) If their sales decrease because of the change in quality, how much of a reduction in sales (dollars and units) could Spatula City handle and still keep their net operating income the same as before the supplier change? Show your data in a Contribution Margin Income Statement.

C) Write a memo to the CFO that presents the pros and cons of the potential supplier change. Include the potential impacts on revenue costs and net operating income, as well as any other factors or consequences of this decision. Be sure to include quantitative evidence and backup as well as any qualitative analysis.

Note: Your letter will be included in your Excel document either in the Excel cells or in a text box.

Hint: The analysis is expected to be thorough. Expect to present approximately 400 words, and support your analysis with data (either given or calculated). Remember that this is a letter to the CFO, so proper grammar and spelling is expected.