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 $(13,200$ units x $$75)$ $$990,000$

Less variable costs

Direct materials $(13,200$ units x $$10)$ $$132,000$

Direct labor $(13,200$ units x $$10)132,000$

Variable factory overhead $(13,200$ units x $$4)52,800$

Selling and administrative $(13,200$ units x $$2)26,400(343,200)$

Contribution margin $(13,200$ units x $$49)646,800$

Less fixed costs

Factory overhead $396,000$

Selling and administrative $264,000(660,000)$

Net income $($loss$)$ $$(13,200)$

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 $$13,200$ per month.

Increase of

b$.$ Reducing the selling price by $$5$ per unit. This should increase the monthly sales by $3,300$ units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed factory overhead by $$4,400$ per month and fixed selling and administrative costs by $$1,980$ per month.

Answer

Increase of

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 $$27,500$ per month.

Answer

Increase

d$.$ Increasing the unit selling price by $$5$ per unit. This action should result in a $2,200$ unit decrease in monthly sales.

Answer

Decrease

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

Answer $9$

Decrease 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 $$13,200$ per month.

b$.$ Reducing the selling price by $$5$ per unit. This should increase the monthly sales by $3,300$ units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed

factory overhead by $$4,400$ per month and fixed selling and administrative costs by $$1,980$ per month.

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 $$1$ per unit, and fixed factory overhead will decline $$27,500$ per month.

Increase of

$61,000$

d$.$ Increasing the unit selling price by $$5$ per unit. This action should result in a $2,200$ unit decrease in monthly sales.

$q$

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

$