Refer to the Moira Mondragon example. At the end of the example, there is some indication that the right decision is to increase the commission and thus the number of units sold. Prepare an argument that this might NOT be the best decision. Be sure to indicate what should be done instead (remember that making no changes is an alternative).

CVP Problem Moira Mondragon tells fortunes for rich clients who need her assistance in making important decisions. She has gathered the following information regarding her costs: Depreciation $7,000 per month Fixed Commissions $50 per fortune Variable Research $5,000 per month plus Fixed $30 per fortune The depreciation relates to the facility where Moira meets her clients. It has been carefully decorated and meticulously arranged to provide just the right atmosphere. Commissions are the fees paid to her network of contacts who provide referrals to her--these include doctors, psychologists, social workers and police. The research is the fact finding that must be carefully done before each appointment. Currently, Moira charges each client $750. On average, she does 20 readings per month Variabl Sales Volume 20 readings per month Selling Price $750 per reading Depreciation $7,000 per month Commissions $50 per fortune Research $5,000 per month plus 530 per fortune Adobe >IT 2 21 Paragraph IN Styles el Ad. Prepare a contribution format income statement for Moira'stim at the current level of activity. $ 15,000 3,000 600 20 x 80 Sales 20* #750 Variable Costs: Commissions 20x $50 Research Contribution Margin Fixed Costs: Depreciation Rescarch Net Income (before taxes) 1,600 $13,400 *7,000 5,000 *12,000 7400 Moira needs more net income than she is currently earning. Based on a careful analysis of her personal expenses, she needs to clear at leas $5,000 per month. She has two ideas: 1) increase the commission tiv $50She believes this will increase units sold by 50% 2) increase the selling price to $1,000 she believes this will be acceptable to her clients, but only if she increases her research efforts. She believes this will cost he $3.000 per month. OPTION I OPnop a $12,000 + #5000 Fortunes #15000 + $5,000 Fortunes 5150 - BO 27.42 = 28 fortunes, 3174 - 22 feber 41000 - 80 Option 1 *22,500 Option 2 $20,000 Sales 30 x $750 20x #1,000 Variable Costs: Commissions 30x10 20x*50 Research 30 x 0 20x30 Contribution Margin Fixed Costs: Depreciation Research Net Income (before taxes) 3, DOO 900 +18, 600 1,000 600 * 18,400 7,000 6,000 7, 000 5000 #6, 60o > 5000 3,400