Ts is thinking of cutting costs by switching to a different material supplier. Their variable material costs would decrease by 50% (only variable material costs not all variable costs). The quality of the ingredients is lower, so Ts estimates that their additional fixed scrap costs related to the ingredient quality would be $1,000,000 per month. They would not change the pricing of their glue bottles.

A) Prepare a revised monthly Contribution Margin Income Statement to include the revenues, costs and profits of using the different raw material (ingredient) supplier. (At normal volume.)

B) What is the break-even point in units? (Show your calculations.)

C) What is the break-even point in sales dollars? (Show your calculations.)

D) If their sales end up decreasing because of the change in quality, how much of a reduction in sales (dollars and units) could Stuckies handle and still keep their net operating income the same as before the supplier change? Show your data in a Contribution Margin Income Statement.

E) What are the potential impacts both Qualitative and Quantitative of the material supplier change? If you had to make the decision of whether to switch suppliers or not, what would you do? Why?

T's produces white school glue. Their glue bottles are primarily sold at department stores across the country. The cost of manufacturing and marketing their glue, at their normal factory volume of 20,000,000 bottles of glue per month, is shown in the table below. T's sells their glue bottles for $1.50 each. T's is making a small profit, but they would prefer to increase their Operating Income.

Data for all Questions:

per unit

variable material $0.30

variable labor $0,35

variable overhead $0.10

variable marketing $0.05

fixed overhead $0.25

fixed marketing $0.20