The most recent contribution format income statement for Ashton Company follows:

Ashton Company

Income Statement

For the Year Ended December 31, 2014

Sales

$450,000

Cost of Goods Sold

Direct materials

Variable

$90,000

Direct labor

Variable

78,300

Manufacturing Overhead

Mixed

98,500

266,800

Gross Margin

183,200

Operating Expenses

Selling

Commissions (% of sales dollars)

Variable

27,000

Shipping (variable)

1,840

Advertising (fixed)

100,000

Sales salaries (fixed)

20,000

148,840

Administrative

Billing (mixed)

6,512

Salaries (fixed)

40,000

46,512

195352

Net Operating Income (Loss)

-12152

Selling price per unit is $10 and variable manufacturing overhead is 30 cents per unit. All variable expenses in the company vary in terms of units sold, except sales commissions, which are calculated as 6% of saels dollars. There was no change in beginning or ending inventories. Ashton's plant has a capacity of 80,000 units per year.

The company has been operating at loss for several years. Management is studying several possible courses of action to determine what should be done to make next year profitable.

			Total Units		4)a.Total Units		4)b. Total Units
			45000	Per Unit	____________	Per Unit	_____________	Per Unit
Sales			$ 450,000.00	10.00
Variable Costs
Manufacture overhead			$ 13,500.00	0.30
Shipping			$ 1,840.00	$ 0.04
Billing			$ 4,050.00	$ 0.09
Commision			$ 27,000.00	$ 0.60
Direct Materials			$ 90,000.00	2.00
Direct Labor			78300.00	1.74
Total Variable Costs			$ 214,690.00	4.77
Contribution Margin			$ 235,310.00	5.23
Fixed Costs
Advertising			$ 100,000.00
Sales Salary			$ 20,000.00
Adminstrative Salary			$ 40,000.00
Billing			$ 2,462.10
Manufacture overhead			$ 85,000.00
Total Fixed Costs			$ 247,462.10
Net Operting Income			-12152.10

The president is considering two proposals as follows:
	a. The vice president suggests reducing the selling price by 5% , reduce advertising by $20,000, and restructure sales salaries to increase base salaries by $2,000 for each of 5 salespersons, lowering commissions to 4% of sales. She is confident that this strategy would increase total production and sales and sales to 75% of capacity.
	b. The sales manager would like to increase the unit selling price by 5%, increase sales commissions to 8%, and increase advertising by $30,000. Based on marketing studies, he is sure that this action would increase sales volume by thirty percent.