Seating Company is currently selling

1 comma 5001,500

oversized bean bag chairs a month at a price of

$9090

per chair. The variable cost of each chair sold includes

$3030

to purchase the bean bag chairs from suppliers and a

$22

sales commission. Fixed costs are

$ 15 comma 000$15,000

per month. The company is considering making several operational changes and wants to know how the change will impact its operating income.Read the requirements

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.

Requirement 1. Prepare the company's current contribution margin income statement. (Use parentheses or a minus sign for an operating loss.)

Decor Seating Company
Contribution Margin Income Statement
	Sales revenue				$135,000
	Variable expenses:
	Cost of goods sold			$45,000
	Operating expenses			3,000	48,000
	Contribution margin				87,000
	Fixed expenses				15,000
	Operating income (loss)				$72,000

Requirement 2. Calculate the change in operating income that would result from implementing each of the following independent strategy alternatives. Compare each alternative to the current operating income as you calculated in Requirement 1. Consider each alternative separately.

a. Alternative 1: The company believes volume will increase by

2020%

if salespeople are paid a commission of

1212%

of the sales price rather than the current

$22

per unit. (Use parentheses or a minus sign for an operating loss.)

Decor Seating Company
Contribution Margin Income Statement
	Sales revenue				$162,000
	Variable expenses:
	Cost of goods sold			$54,000
	Operating expenses			19,440	73,440
	Contribution margin				88,560
	Fixed expenses				15,000
	Operating income (loss)				$73,560

Operating income from implementing these changes would

increase

by $

1,560

from Requirement 1.

b. Alternative 2: The company believes that spending an additional

$ 3 comma 000$3,000

on advertising would increase sales volume by

1414%.

(Use parentheses or a minus sign for an operating loss.)

Decor Seating Company
Contribution Margin Income Statement
	Sales revenue				$153,900
	Variable expenses:
	Cost of goods sold			$51,300
	Operating expenses			3,420	54,720
	Contribution margin				99,180
	Fixed expenses				18,000
	Operating income (loss)				$81,180

Operating income from implementing these changes would

increase

by $

9,180

from Requirement 1.

c. Alternative 3: The company is considering raising the selling price to

$104104,

but believes volume would drop by

2020%

as a result. (Use parentheses or a minus sign for an operating loss.)

Decor Seating Company
Contribution Margin Income Statement
	Sales revenue				$124,800
	Variable expenses:
	Cost of goods sold			$36,000
	Operating expenses			2,400	38,400
	Contribution margin				86,400
	Fixed expenses				15,000
	Operating income (loss)				$71,400

Operating income from implementing these changes would

decrease

by $

600

from Requirement 1.

d. Alternative 4: The company would like to source the product from domestic suppliers who charge

$ 13$13

more for each unit. Management believes that the "Made in the USA" label would increase sales volume by

2020%

and would allow the company to increase the sales price by

$ 14$14

per unit. In addition, the company would have to spend an additional

$ 5 comma 500$5,500

in marketing costs to get the word out to potential customers of this change. (Use parentheses or a minus sign for an operating loss.)

Decor Seating Company
Contribution Margin Income Statement
	Sales revenue
	Variable expenses:
	Cost of goods sold
	Operating expenses
	Contribution margin
	Fixed expenses
	Operating income (loss)