Johan Van der Merwe, the operations manager at Cat Condos Inc., a manufacturer of cozy cat homes, emails you a suggestion that a 10% reduction in sales price combined with a $130,000 increase in internet advertising expenditures would increase units sold by 25%. You decide to run the numbers to see if that would make sense for the company. You review last years results in the table below. Last Year: Total Per Unit Sales $1,080,000 $100.00 Less: Variable expenses 486,000 45.00 Contribution margin 594,000 $55.00 Less: Fixed expenses 435,000 Net operating income $159,000

Required: Prepare comparative statements to see if what Johan suggests will improve the bottom line. After preparing the statements, write Johan a business-like text message on what you have calculated and whether it supports his suggestion. (6 marks)