question 3

Due to the sluggish economy, the Wheels Company has experienced some difficulty in selling its bicycles. The following data relate to the current year

Sales 9,000 units x $100@ $ 900,000

less: variable costs 9,000 units x $60@ $ 540,000

contribution margin $ 360,000

less :fixed costs $ 400,000

Net loss $ 40,000

Requirements

a) Compute Wheels' breakeven point in both units and dollars.

b) The manager believes that a $40,000 increase in advertising would result in a $120,000 increase in annual sales. If the manager is right, what will be the effect on the company's net income or loss?

c) Refer to the original data. The vice-president in charge of sales is certain that a 10% reduction in price in combination with a $30,000 increase in advertising will cause unit sales to increase by 50%. What effect would this strategy have on net income (loss)?

d) Refer to the original data. In the following year, Wheels saved $5 of total variable costs per bicycle by buying parts from a different manufacturer. However, Wheels' rent, and insurance increased by $5,600. The store sold 11,000 bikes. What was its net income (loss) for the year?