In an attempt to improve profit performance, Anderson Company$$s management is considering a number of alternative actions. An October contribution income statement for Anderson Company follows.

ANDERSON COMPANY

Contribution Income Statement

For Month of October

Sales $(10,800$ units x $$75)$ $$810,000$

Less variable costs

Direct materials $(10,800$ units x $$10)$ $$108,000$

Direct labor $(10,800$ units x $$10)108,000$

Variable factory overhead $(10,800$ units x $$4)43,200$

Selling and administrative $(10,800$ units x $$2)21,600(280,800)$

Contribution margin $(10,800$ units x $$49)529,200$

Less fixed costs

Factory overhead $324,000$

Selling and administrative $216,000(540,000)$

Net income $($loss$)$ $$(10,800)$

Required

Determine the effect of each of the following independent situations on monthly profit.

Note: Do not use negative signs with your answers.

a$.$ Purchasing automated assembly equipment, which should reduce direct labor costs by $$4$ per unit and increase variable overhead costs by $$1$ per unit and fixed factory overhead by $$10,800$ per month.

Answer

Increase of

$Answer

b$.$ Reducing the selling price by $$5$ per unit. This should increase the monthly sales by $2,700$ units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed factory overhead by $$3,600$ per month and fixed selling and administrative costs by $$1,620$ per month.

Answer

Increase of

$Answer

c$.$ Buying rather than manufacturing a component of Anderson$$s final product. This will increase direct materials costs by $$5$ per unit. However, direct labor will decline $$3$ per unit, variable factory overhead will decline $$1$ per unit, and fixed factory overhead will decline $$22,500$ per month.

Answer

Increase of

$Answer

d$.$ Increasing the unit selling price by $$5$ per unit. This action should result in a $1,800$ unit decrease in monthly sales.

Answer

Decrease of

$Answer

e$.$ Combining alternatives $($a$)$ and $($d$).$

Answer

Decrease of

$Answer