Following is the income statement for Peach Inc.: Sales [50,000 units} $600,000 Less: Cost of goods sold 360,000 Gross margin 240,000 Operating expenses Selling $180,000 Administrative i'SIIJIJD 255 000 Operating loss m Notes: 0 A breakdown of cost of goods sold provides the following information: Direct materials $120,000 Direct labour 80,000 Manufacturing overhead 160,000 0 Management estimated that 40% of the manufacturing overhead was fixed and 60% was variable. 0 Fixed selling expenses are $120,000. Commission paid is the only variable selling expense. The commission is a percentage of sales revenue. 0 All administrative costs are considered fixed costs. Required: 1. Redo Peach's income statement in contribution margin format. Your format should show the unit contribution, total contribution and operating income or loss. 2. The president is considering two alternatives in efforts to increase protability: a.) Reduce the selling price by 15%. It is anticipated that this reduction would increase the sales volume by 35%. b.) Increase the selling price by 10%, increase the sales commission to 14% and increase advertising by $110,000. Market research has indicated that these changes would increase sales volume by 40%. Prepare two contribution income statements, one for each alternative. Which alternative {if either} would you recommend to the management of Peach Inc.? 3. Refer to the original data. The company is considering reducing the material costs by 15%. How many units would have to be sold under this alternative to generate operating income of $15,000? Unit selling price Variable costs Direct materials Direct labour Overhead Selling Variable costs Unit contribution Volume Total contribution Fixed costs Manufacturing Selling Administrative Operating income 50,000 Required 1 5 12.00 2.40 1.60 1.92 1.20 7.12 4.88 50,000 244,000 64,000 120,000 75,000 259,000 5 15,000 7 7 67,500 Required 2A 5 10.20 2.40 1.60 1.92 1.02 59% 6.94 41% 3.26 67,500 220,050 64,000 120,000 75,000 259,000 -5 30,950 7 7 70,000 Required 2!: 5 13.20 2.40 1.60 1.92 1.85 68% 7.2? 32% 5.43 70,000 300,240 64,000 230,000 75,000 369,000 S 11240 59% 41%