Mrs. Potts, the president of B & B Products Limited has come to you for assistance as she is worried because sales of Product A have been declining lately. She has provided you with the following information for the sales & expenses of Product A for the year ended January 31, 2020:

Sales 850,000

Cost of goods sold 474,500

Selling expenses 125,000

Wages 100,000

Administrative expenses 75,000

Advertising expenses 25,000

Additional information: - selling expenses are 75% variable & 25% fixed

- administrative expenses are 30% variable & 70% fixed

- wages and advertising expenses are 100% fixed

- the company sold 17,000 units of Product A in the year ended January 31, 2020.

Required:

(a) How to prepare a contribution format income statement for the year ended January 31, 2020. Include per unit & % columns.

(b) Calculate breakeven point both in terms of sales dollars and units.

(c) Calculate the margin of safety in dollars & the degree of operating leverage.

(d) In an effort to try & improve sales Mrs. Potts is considering the following options:

1. Mrs. Potts feels that if they begin paying their sales people a commission of $2.00 per unit that sales volume will increase by 15% while their fixed costs for wages will decrease by $10,000.

2. Mr. Cogsworth, the sales manager feels that if they decrease the selling price by 10% & increase advertising by $5,000 they will sell an additional 5,000 units

How to write a memo to Mrs. Potts telling her which option if any you would recommend. Show calculation to support your answer.

Round to 2 decimal places in calculating per unit & % amounts