Rayburn Co. manufaetures and sells glow in the dark phone eases. Terry Andreikowski, the president of the Rayhum Co, has a hard time understanding the aeeounting in his rm. Yesterday morning, he was veryr eonfused when he reeeived mail from his aeeountant, Julia Dmherg. She sent him the following ineome statements: LIL i Estes rename s 25m: s sastn (in of pandas-old taken 1% Cameron 151m 22.530 Flirt m 1.5.1: 1.5:!) WWW 3.5.13 arm Eire-\"names 1-95\" 113-35 LIiIItiasamanaa 1'53 T51 was-tiara enema TED HE humus mun an: ace (Illuminati s gas: it rains Teny was somewhat nstrated and said \"Last month, we sold LII-[ll] glow in the dark phone eases and earned $6,35l} in operating ineome. This month, when we sold 1,50!) eases. ] thought we'd make $10,215. This ineome statement shows an operating income of 5111130! How can I ever make any plans when I ean't even prediet my income? This aeeounting non- sense is ten confusing! I will give Julia one last ehanee to explain to me what's going on.\" "Can you please try to explain this operating ineome non-sense to me once more?\" Teny asked Julia on the phone. Terry said: \"After I saw last month's ineome statement, I thought eaeh glow in the dark ease generated $6.35 in net income; now this month eaeh one generates $81}?! No ehanges took place in the nest of each ease, so why does this change in operating income happen? If I had known I was going to have a higher operating ineome, I would've looked more seriously at adding to our produet line!" After patiently listening to Terry's blah, and taking a deep breath, Julia answers: \"Of course, Terry. Let me explain to you again how you made so mueh more operating ineome than what you were expecting." Reunited; a} Assmne Julia's role. Explain to Terry why his use of operating income per mascot was in enor. h] Terry plans to sell ll-ll glow in the dark phone cases next month. How much operating income can Terry expect to earn next month if he realizes his planned sales? cl Terry was not at all happy with the projected income statement you showed him for a sales level of Sill} eases. Now he wants to know how many glow in the dark cases he needs to sell to earn $3304] in operating income. As a safety net, he would like to know how many mascots he will nwd to sell to break even. d] Terry was evaluating 2 additional options to increase the number of cases sold next month. The options are as follows: recrease the selling price r 10% purchase a package of 12 ad. = decreased selling price wi liver the next month, to .' crease the number of = ' ~ aid from 500m Lilli]. rte au- wr increase is number of cases sold from 50!} to 960. Which plan should Terry implement? At what level of sales would he he indifferent henveen the two plans? e} Right after Terry completed an income projection for 1,200 glow in the dark phone cases, his supplier informed him of a 20% increase in cost of goods sold, effective inunediarely. Terry knows that he cannot pass the entire increase on to his customers, but he thinks he can pass on halfof the 20% increase while suffering only a 5% decrease in units sold. Should Terry respond to the increase in cost of goods sold with an increase in price? I] Please refer back to the original infomiation. Terry has decided to add sparkly laptop cases to his product line. He has found a supplier who will provide the sparkly laptop cases for $32, and he plans to sell them for $55. They are premium quality cases. All other variable costs currently incurred for selling glow in the dark phone cases will be incurred for selling sparkly laptop cases at the same rate. Additional xed costs ofolSll per month will be incurred. He believed he can sell one laptop case for every 3 phone cases. How many sparkly laptop cases and glow in the darlr phone cases will Ten-y need to sell each month in order to break even
