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Sicillian the mafia (Sicillian) produces a famous leather polish with a unique glossy feature and sells it for $25 per unit. The operating income for
Sicillian the mafia (Sicillian) produces a famous leather polish with a unique glossy feature and sells it for $25 per unit. The operating income for 2019 is as follows: Per unit ($) Total ($) Sales revenue $25 $750,000 Raw-materials 5 150,000 Variable manufacturing costs 4 120,000 Other variable costs 6 180,000 Contribution margin 10 300,000 Fixed cost 174,000 Operating income $126,000 Sicillian would like to increase its profitability over the next year by at least 20%. To do so, the company is considering the following options: i. Replacing a portion of its variable labor with an automated machining process. This would result in a 25% decrease in variable manufacturing costs per unit, but a 20% increase in fixed costs. Sales would remain the same. ii. Spending $30,000 on a new advertising campaign, which would increase sales by 20%. iii. Increasing both selling price by $5 per unit and raw-material costs by $3 per unit by using a higher-quality raw-material in producing its leather polish. The higher-priced leather polish would cause demand to drop by approximately 20%. iv. Adding a second manufacturing facility that would double Sicillian's fixed costs, but would increase sales by 60%. Required: a Evaluate each of the alternatives considered by Sicillian. Do any of the options meet or exceed Sicillian's targeted increase in income of 25%? b/ If none of them is going to achieve Sicillian's target, explain with supporting calculations what should Sicillian do? You may combine the options if it is desirable to do SO
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