Mike recently started a business called Accounting in a Box to sell two new accounting board games. The first is a game related to financial accounting called Debit or Credit, the Home Game. The second is a game related to managerial accounting called Fixed or Variable (and Sometimes Mixed), a Game for Friends. He is unsure about how to distribute the games to his potential customers, so he has decided to sell each board game using a different sales model. For Debit or Credit, he has decided to sell directly to local retailers. For Fixed or Variable (and Sometimes Mixed), he has decided to hire a team of salespeople to sell the game door-to-door. Direct labor workers are paid $25 per hour. He has made the following estimates pertaining to each game for April 2023:

Other Assumptions:

The selling price is determined using cost-plus pricing (based on manufacturing cost) with a markup of 50%.

Salespeople are paid entirely on commissions and are paid $2.60 per unit sold.

Advertising costs are fixed at $5,000 for the month.

Administrative costs are fixed at $10,000 for the month

Debit or Credit Fixed or Variable

Estimated sales (in units) 5,000 7,500

Direct materials cost per unit $5.25 $6.25

Direct labor required to make one unit (in hours) 0.30 0.40

Overhead is applied based on direct labor hours. He has also made the following estimates pertaining to the month of April 2023:

Total

Estimated total overhead (for the month) $11,250

Estimated direct labor hours 4,250

1. What is the contribution margin per unit for Debit or Credit?

2. What is the contribution margin per unit for Fixed or Variable (and Sometimes Mixed)?

3. Prepare a contribution format income statement for Accounting in a Box for April 2023.

4. The salespeople think that Fixed or Variable (and Sometimes Mixed) is overpriced and that they could sell 2,500 additional units if the price of the game was reduced by $5.00 per unit. What would be the change in net operating income if this plan is adopted? Would you recommend that this plan be adopted? Why or why not? Show any calculations that helped you reach your decision.