PARAMETERS FOR BASELINE CASE
The following numbers are estimates for the upcoming year for a manufacturing company.
Since the company is effective at implementing a JIT inventory system, assume there is
no beginning or ending inventory.
No. of units sold	33,000
Selling price per unit	$225.00
	Fixed Expenses	Variable Expenses (per unit sold
Production costs:
Direct materials		$20.00
Direct labor		36.00
Factory overhead	$2,160,000	24.00
Marketing expenses:
Sales salaries and commissions	300,000	7.50
Advertising	460,000
Miscellaneous mktg. expenses	208,000
Administration expenses:
Office salaries	760,000
Supplies	105,000	1.50
Miscellaneous admin. expenses	72,000
TOTAL EXPENSES	$4,065,000	$89.00

2. Complete Four Scenarios (What-if Analyses)

You want to determine whether the following four suggestions (i.e., e, f, g, h) would improve the companys performance. Determine the effects of each suggestion on operating income, contribution margin per unit, contribution margin percentage, breakeven point in units, and breakeven point in sales dollars.

Calculate the effects of each suggestion independently of the other suggestions. In other words, use the original baseline case data and make the first change (e); use the original baseline case data and make the second change (f); and so on. However, do not overwrite the original baseline case. The easiest way to do this is to copy the original data to a new sheet and then replace the original data parameters. To copy a sheet, click on the sheet name. Select Move or Copy. Click on the Create a copy box. Click OK.

1. Put all personnel on commission. This action would affect the sales salaries and commissions expense by eliminating the fixed portion and increasing the variable portion by $7.50 per unit. Sales would increase by 12,000 units.
2. Redesign the package for the product. This would decrease the variable direct materials cost by $1.50 per unit but would increase the fixed factory overhead by $40,000.
3. Launch a new advertising campaign. This would increase fixed advertising expense by $360,000 but would increase sales volume by 4,500 units.
4. Reduce the selling price of the product by $15.00 per unit. This would increase sales volume by 5,200 units.
5. Write a memo, explaining whether the company should use any of the suggestions. Create your memo in Word, not Excel. Use proper memo format. Word has a memo template (FILE | NEW | type in memo in the search for online templates box).