Multiple Changes in Profit Plans In an attempt to improve profit performance, Anderson Companys 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 ( 12,000 units x $75) $900,000 Less variable costs Direct materials ( 12,000 units x $10) $120,000 Direct labor ( 12,000 units x $10) 120,000 Variable factory overhead ( 12,000 units x $4) 48,000 Selling and administrative ( 12,000 units x $2) 24,000 (312,000) Contribution margin ( 12,000 units x $49) 588,000 Less fixed costs Factory overhead 360,000 Selling and administrative 240,000 (600,000) Net income (loss) $(12,000) 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 $12,000 per month. Answer $Answer b. Reducing the selling price by $5 per unit. This should increase the monthly sales by 3,000 units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed factory overhead by $4,000 per month and fixed selling and administrative costs by $1,800 per month. Answer $Answer c. Buying rather than manufacturing a component of Andersons 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 $25,000 per month. Answer $Answer d. Increasing the unit selling price by $5 per unit. This action should result in a 2,000 unit decrease in monthly sales. Answer $Answer e. Combining alternatives (a) and (d). Answer $