Question
This is what I need help with: From looking at the below 5 alternatives, summarize the Pros and Cons of each of the alternatives. If
This is what I need help with: From looking at the below 5 alternatives, summarize the Pros and Cons of each of the alternatives. If possible, evaluate the alternatives based on current market conditions and any impact each alternative may have on the long-range plan.
Situation for Analysis: Grayslake Novelty produces and sells a small novelty item through tourist shops in Chicago and other northern Illinois locations. Last year the company sold 198,400 units of one of its products. The income statement for this product for last year is shown below:
Sales | $992,000 |
Less: Variable Expenses | 545,600 |
Contribution Margin | 446,400 |
Less: Fixed Costs | 180,000 |
Net Operating Income | $266,400 |
While this product has been profitable, as shown in the above income statement, sales began falling near the end of last year and have continued to decline this year. There is concern that new competitors are beginning to take market share from Grayslake Novelty. As a result of declining market share, Sarah Burroughs, the company president, has asked you to provide some information to assist her in making decisions about the companys strategy for this product. These alternatives should be evaluated individually. ATTACHED is each Alternative below:
Req B (Alt 1) Reduce the current price by 8% Req C (Alt 2) Reduce the current variable cost by 0.20 per unit Req D (Alt 3) Reduce the current price by 8% and reduce the variable cost by 0.20 per unit Req E (Alt 4) Reduce the variable cost by 0.65 per unit and increase the fixed costs by $50,000 Req F (Alt 5) Sales could be increased by 20% if the company hired an additional salesperson: paid both individuals $40,000 fixed salaries; and a 0.25 commission per unit sold Recommendation: Req B (Alt 1) Reduce the current price by 8% Req C (Alt 2) Reduce the current variable cost by 0.20 per unit Req D (Alt 3) Reduce the current price by 8% and reduce the variable cost by 0.20 per unit Req E (Alt 4) Reduce the variable cost by 0.65 per unit and increase the fixed costs by $50,000 Req F (Alt 5) Sales could be increased by 20% if the company hired an additional salesperson: paid both individuals $40,000 fixed salaries; and a 0.25 commission per unit sold RecommendationStep by Step Solution
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