Spirit Masks is a company that started up during the COVID-19 Pandemic. It sells masks that are meant to protect individuals during their day to day functions. The owner is thinking of expanding her sales team by hiring high school students, on a commission basis, to sell these masks, bearing the name and mascot of their local high school. Spirit would pay the students a commission of $1.50 per mask sold. These masks would need to be ordered from the manufacturer at a cost of $8 each. Fixed costs per month are $1,000. The selling price of the masks would be $13.50 each. Required: a) To make this project worthwhile, the company would require a $1,200 profit for the first 3 months of this venture. What level of unit sales and dollar sales would be required to reach this target net operating income? Show all of your calculations (4 marks). b) Assume Spirit is currently selling 1,000 masks per month. After some consultation with customers, Spirit management believes it could increase sales volume by 20% per month by reducing its selling price by $1 per mask and increasing its monthly advertising costs by $200. If these changes were implemented what would be the change in operating profits for one month? (4 marks) Spirit Masks is a company that started up during the COVID-19 Pandemic. It sells masks that are meant to protect individuals during their day to day functions. The owner is thinking of expanding her sales team by hiring high school students, on a commission basis, to sell these masks, bearing the name and mascot of their local high school. Spirit would pay the students a commission of $1.50 per mask sold. These masks would need to be ordered from the manufacturer at a cost of $8 each. Fixed costs per month are $1,000. The selling price of the masks would be $13.50 each. Required: a) To make this project worthwhile, the company would require a $1,200 profit for the first 3 months of this venture. What level of unit sales and dollar sales would be required to reach this target net operating income? Show all of your calculations (4 marks). b) Assume Spirit is currently selling 1,000 masks per month. After some consultation with customers, Spirit management believes it could increase sales volume by 20% per month by reducing its selling price by $1 per mask and increasing its monthly advertising costs by $200. If these changes were implemented what would be the change in operating profits for one month? (4 marks)
