The Chief Financial Officer at BYC Corporation, Redding Noston, has hired you to perform some cost-volume-profit analysis to determine what changes can be made to increase profitability. BYC Corp Formed on January 1, 2013 and has struggled financially since inception. Redding has provided you with the following traditional income statement for 2016

Sales	10,000,000
Cost of good sold:?
Direct labor	2,500,000??
Direct material	2,000,000??
Variable manufacturing overhead	1,500,000??
Fixed manufacturing overhead	2,000,000??
Total cost of goods sold	8,000,000??
Gross Margin	2,000,000??
Operating expenses
Variable selling expenses	500,000??
Fixed selling expenses	750,000??
Fixed administrative expenses	1,500,000??
Total operating expenses	2,750,000??
Net operating loss	(750,000)??

Total sales volume for 2016 was 500,000 units.

The relevant range for BYC Corporation is 400,000 - 700,000 units.

(1) Prepare a contribution format income statement for 2016.

Calculate the break-even sales dollars and the break-even sales units.

(2) The Production Manager believes that by using a lower quality material, the cost of direct material can be reduced by 15% per unit.

While he doesn't expect the change in material quality to be apparent, he believes that customers will overlook any change in quality if the product has a lower sales price.

He believes that by lowering the sales price by $1.00 per unit, there will be a 10% increase in sales volume.

Prepare a contribution format income statement for this alternative.

Calculate the break-even sales dollars and the break-even sales units.

(3) The Quality Control Manager does not agree with the Production Manager's suggestion and has a different idea.

He believes that an additional piece of equipment can be purchased.

The new piece of equipment will allow the company to decrease Direct Labor to 17% of Sales.

The new piece of equipment will increase fixed costs by $250,000 per year.

The Quality Control Manager would also like to change the costs for the Sales Department. He has proposed spending an additional $6,000 per month on advertising and

reducing variable selling expenses by $0.50 per unit.

He believes these changes will lead to an increase in sales volume of 2%. Coupled with an increase in sales price per unit of $0.25, the company should break-even.

Prepare a contribution format income statement for this alternative.

Calculate the break-even sales dollars and the break-even sales units.

(4) The Sales Manager also believes that an additional piece of equipment is the answer to financial success.

She agrees with the Quality Control Manager that a piece of equipment costing $250,000 per year will create a cost savings overall.

However, she believes that the equipment combined with a decrease in sales price of $5 per unit will increase sales volume by 50%.

In addition, she believes direct labor can be reduced to 15% of sales.

With the decrease in direct labor necessary to produce the merchandise, she is proposing firing two manufacturing managers for a total savings of $400,000.

She also believes a change in the Sales Department is necessary and has proposed eliminating all sales commissions so that variable selling costs will be totally

eliminated but sales salaries will be increased by $12,000 per year.

Prepare a contribution format income statement for this alternative.

Calculate the break-even sales dollars and the break-even sales units.

(5) Prepare a memo to the Chief Financial Officer summarizing the results of your analysis.

Include specific financial information.

Provide a written conclusion for analysis.