Need help with Part C

Panalon produces cast iron dutch ovens (a deep pot with a lid that can be used on a stovetop or in the oven). Their pots are sold at many local department stores. The cost of manufacturing and marketing their pots, at their normal factory volume of 5,000 pots per month, is shown in the table below. These pots sell for $50 each. Panalon is making a small profit, but would prefer to increase profitability. Hint: Fixed costs are shown on a per-unit basis in the table based on normal volume. However, fixed costs as a total do not change when volume changes, so you will need to determine total fixed costs first. Questions: Panalon is thinking of cutting costs by using a different raw material supplier. Their variable material costs would decrease by 25%. The quality of the metal is lower, so Panalon estimates that their additional scrap costs related to the metal quality would be $5,000 per month. They would not change the pricing of their pots. Note: Use the initial data provided for all questions. Ignore the colored pots and special sale data from other questions.

A) Prepare a revised Contribution Margin Income Statement to include the costs and benefits of the different raw material supplier.

B) If the sales decrease because of the change in quality, how much of a reduction could Panalon handle and still keep their net operating income the same as before the supplier change?

C) Write a memo to the CFO that presents the pros and cons of the potential supplier change. Include the potential impacts on revenue costs and net operating income, as well as any other factors or consequences of this decision. Be sure to include quantitative evidence and backup as well as any qualitative analysis. Hint: The analysis is expected to be thorough. Expect to present approximately 400 words, and support your analysis with data (either given or calculated).

Panlon Company
Contribution Margin Income statement
For the year ending 2018 December 31
Volume		5000
Sales		$250,000.00
Variable Expenses
Less: Variable Manufactoring Materials	$37,500.00
Less: Variable Manufactoring Labor	$45,000.00
Less: Variable Manufactoring Overhead	$25,000.00
Less: Variable Marketing Cost	$20,000.00
Variable Cost Total		$127,500.00
Contribution Margin		$122,500.00
Fixed Expenses
Fixed Overhead	$30,000.00
Fixed Marketing Expenses	$40,000.00
Scrap Cost	$5,000.00
Total Fixed Expenses		$75,000.00
Net Operating Income		$47,500.00
Part 4B
If the sales decrease because of the change in quality, how much of a reduction could Panalon handle and still keep their net operating income the same as before the supplier change?
Original Net Operating Income	$110,000-$70,000	$40,000.00
New Total Fixed Expenses		$75,000.00
New Contribution Margin	$40,000+$75,000	$115,000
Change in cost materials	(10*(1-0.25))*5000	$37,500.00
New Sales	$115,000+$127,500	$242,500
The reduction in sales that still keep $40,000 net operating income:
Amount of Reduction	$250,000-$242,500	$7,500
Units Reduced	7500/50	150 units