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Your small manufacturing operation has the following information concerning the main product: Current Situation: Sales in Units 4,000 Sales in Dollars 720,000 less: Variable
Your small manufacturing operation has the following information concerning the main product: Current Situation: Sales in Units 4,000 Sales in Dollars 720,000 less: Variable Costs 400,000 Contribution Margin 320,000 less: Fixed Costs 300,000 Operating Income 20,000 Your manager has asked you to prepare operating income estimates for these three following options. = Option 1 This scenario ssumes a 5% increase in sales volume (units) over the Current Situation as a result of 20,000 of increased advertising. As well, a $10 decrease in per unit variable cost can be realized as a result of new, automated production equipment. The new equipment will increase depreciation expense by $25,000. = Option 2 The sales manager believes that a $5 decrease in the sales price per unit will result in a 10% increase in sales volume (units) from the Current Situation, however, this will need to be accompanied by $30,000 of increased advertising. Assume that the automation described above in Option 1 will be applied in this scenario as well..
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