Question 2 (14 Marks)

Fraser Industrial Manufacturing (FIM) manufactures a single product that sells for $200. The company is not satisfied with its performance and is looking for ways to improve results. Mary Fraser, the president of FIM, has asked the management team to consider changes to enhance profitability. You gather the following information for the most recent month:

Variable cost per unit $ 140

Fixed costs $300,000

Current monthly unit sales 6,000

Required

1. Prepare an income statement for the most recent month using the contribution format.

2. The production manager suggests that if we install robotic equipment in the production facilities at a fixed cost of $30,000 per month, we could reduce variable costs by $4 per unit. The suggested change will also increase the quality of our product resulting in a unit sales increase of 2% per month. Should the change be made? Show work.

3. (Refer to the original information) The marketing manager suggests that we replace our salaried sales people with commissioned sales people. This change will result in fixed cost savings of $50,000 per month. The variable costs will increase by $16 per unit. If the change is made, unit sales volume is expected to increase by 15%. Should the change be made? Show Work.

4. Are there any other considerations qualitatively or quantitatively that Mary Fraser should consider?