Fashion Brands sells mens and womens clothing. Among their many brands are two styles of mens mid-weight sweaters. One is made of cashmere fabric and the other is made from 100% Pima cotton fabric.

As of 12/31/20x1, both styles of sweaters are generating operating losses. The company is analyzing the recent results to determine which sweater brand to promote for the upcoming Fathers Day promotional activities.

For fiscal year-ending 12/31/20x1, following is the sales and cost information for the two sweater brands:

	100% Cashmere	Pima Cotton
Number of units sold	1,500	1,000
Selling price	$140.00	$125.00
Variable cost per unit	$80.00	$75.00
Total fixed costs	$150,000	$100,000

Assume that the fixed costs are directly associated with the related brand.

Required

Prepare an Income Statement in the contribution format and in good form for each style, separately.

For each style, compute:

Break-even in units and in sales dollars

Number of units sales required to achieve an operating profit amount = $10,000

The dollar amount of sales when operating profit = $10,000.

Operating leverage using the given information, i.e., units sold =1,500 and 1,000 for Cashmere and Pima Cotton, respectively.

Determine the level of sales, in units, at which sales in units and total operating profit for each style will be equal for the two products.

Management asks for your opinion as to which style of sweater they should increase their investment in given they anticipate that, with increased investment, and keeping selling price and costs as given, unit sales will increase significantly for the next 5 or so years. (High risk/High Reward scenario). Please explain your reasoning for the style you recommend.