Xanadu, Inc., manufactures and sells one product, Alph, for $37 per unit. Xanadu is the only manufacturer that produces Alph because it is a patent protected product. Although Xanadu, Inc., only sells the one product, Alph, they have loyal customers all over the world and the company has remained profitable for many years. The company maintains no beginning or ending inventories and its relevant range of production is 15,000 units to 35,000 units per month. Shipping costs are 20% of variable selling expense, and Xanadu typically produces and sells 30,000 units per month of its product and its unit costs are as follows: Amount Per Unit Direct materials 9.00 Direct labor $ 6.00 Variable manufacturing overhead $ 1.50 Fixed manufacturing overhead 7.00 Fixed selling expense $ 2.50 Variable selling expense 1.50 Fixed administrative expense .50 Sales commissions 3.00 Variable administrative expense 1.00 nue Two executives at Xanadu, Neil and Geddy, have differing opinions about improving profitability 9. Neil feels that the quality of the product could be substantially improved by spending $1.25 more per unit on better raw materials. The higher quality raw material will require improvements on the current manufacturing machinery, increasing fixed manufacturing overhead $2.50 per unit. The selling price per unit of Alph will remain at $37.00 per unit. Neil estimates that sales volume would increase 15%. What effect would Neil's plan have on the profit and break even point in dollars of Xanadu, Inc.? 10. Geddy believes that sales volume can be increased by reducing expenses and increasing advertising and promotional campaigns. Geddy proposed the following as an alternative to Neil's plan: (1) Reduce variable selling expenses 20% by charging customers for shipping costs, (2) increase sales commissions by $1.50 per unit, (3) increase fixed selling expenses by $0.50 per unit and (4) increase the unit price of Alph from $37.00 to $37.50. Geddy is confident that these changes will increase sales by 15%. What effect would Geddy's plan have on the profit and break even point in dollars of Xanadu, Inc.? 11. Which, if either, proposal do you support? Can you suggest a third alternative to improve profitability