Required: Corporation makes and sells ice cream products. The following information shows relevant information about the ice cream production costs and sales. $ 14.80 3,000 $4.60 2.20 $ 6.80 Average selling price of ice cream per gallon ........... Number of gallons sold per month ................... Variable costs per gallon: Ice cream ......... Supplies (cups, cones, toppings, etc.) .......... Total variable expenses per gallon .... Fixed costs per month: Rent on building ..... Utilities and upkeep .... Wages, including payroll taxes ....... Manager's salary, including payroll taxes but excluding any bonus ..... Other fixed expenses ...... Total fixed costs per month .... $ 2,200.00 760.00 4,840.00 2,500.00 1,700.00 $12,000.00 Based on these data, the monthly break-even sales volume is determined as follows: $12,000 (fixed costs) $8.00 (contribution margin per unit) unit = 1,500 gallons (or $22,200) Management at Corporation strives to increase operating income. To achieve that objective, the company is considering the following two alternatives: First option is to cut out the selling price by an average of $2.00 per gallon. This action is expected to increase the sales by 20%. Another option is to spend $3,000 per month on advertising without any change in selling price. This action is expected to increase the sales by 10 percent. Part 1 Which of these two alternatives would result in the higher monthly operating income? How many gallons of ice creme must be sold per month under each alternative to break even? Part II Prepare a memo to the management about your recommendations with respect to these two alternative marketing strategies. Hints: For Part I you will basically need to compute the expected operating income under each option and compare them with the operating income under the regular situation (before the marketing strategies). Evaluate which one gives the largest income. You know that operating income is calculated by Sales - Variable costs - Fixed costs. All the techniques and skills required to solve Part I is discussed and illustrated in Chapter 6 (CVP analysis). You will need to carefully analyze and understand the given data. You are recommended to go over Chapter 6 to solve Part I questions. Part II is a memo you need to prepare based on the results you obtained from Part I. If you have a question, please let me know