Modest Seating Company is currently selling 3.000 oversized bean bag chairs a month at a price of $80 per chair. The var

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Modest Seating Company is currently selling 3.000 oversized bean bag chairs a month at a price of $80 per chair. The variable cost of each chair sold includes $30 to purchase the bean bag chairs from suppliers and a $8 sales commission Fixed costs are $12.000 per month. The company is considering making several operational changes and wants to know how the change will impact its operating income. Read the requirements
1. Prepare the company's current contribution margin income statement. 2. Calculate the change in operating income that would result from implementing each of the following independent strategy alternatives. Compare each alternative to the current operating income as you calculated in Requirement 1. Consider each alternative separately. a. Alternative 1: The company believes volume will increase by 14% if salespeople are paid a commission of 15% of the sales price rather than the current $8 per unit. b. Alternative 2: The company believes that spending an additional $4,500 on advertising would increase sales volume by 9%. c. Alternative 3: The company is considering raising the selling price to $94, but believes volume would drop by 28% as a result. d. Alternative 4: The company would like to source the product from domestic suppliers who charge $8 more for each unit. Management believes that the "Made in the USA" label would increase sales volume by 14% and would allow the company to increase the sales price by $9 per unit. In addition, the company would have to spend an additional $4,000 in marketing costs to get the word out to potential customers of this change.
Requirement 1. Prepare the company's current contribution margin income statement. (Use parentheses or a minus sign for an operating loss.) Modest Seating Company Contribution Margin Income Statement Sales revenue Variable expenses: Cost of goods sold Operating expenses Contribution margin Fixed expenses Operating income (loss) Requirement 2. Calculate the change in operating income that would result from implementing each of the following independent strategy alternatives 1. Consider each alternative separately. ales price rather than the c
Lequirement 2. Calculate the change in operating income that would result from implementing each of the following independent strategy alternatives. Compare each alternative to the current operating income as you calculated in Requireme m. Consider each alternative separately Alternative 1: The company believes volume will increase by 14% if salespeople are paid a commission of 15% of the sales price rather than the current $0 per unit. (Use parentheses or a minus sign for an operating loss) Modest Seating Company Contribution Margin Income Statement Sales revenue Variable expenses Cost of goods sold Operating expenses Contribution margin Fixed expenses Operating income (s) Operating income from implementing these changes would by from Requirement 1.
b. Alternative 2: The company believes that spending an additional $4,500 on advertising would increase sales volume by 9%. (Use parentheses or a minus sign for an operating loss.) Modest Seating Company Contribution Margin Income Statement Sales revenue Variable expenses: Contribution margin Fixed expenses Operating income (loss) by from Requirement 1. Operating income from implementing these changes would Cost of goods sold Operating expenses
c. Alternative 3: The company is considering raising the selling price to $94, but believes volume would drop by 28% as a result. (Use parentheses or a minus sign for an operating loss Modest Seating Company Contribution Margin Income Statement Sales revenue Variable expenses Cost of goods sold Operating expenses Contribution margin Fixed expenses Operating income (loss) from Requirement 1. Operating income from implementing these changes would Marin in the USA label would increa
d. Alternative 4: The company would like to source the product from domestic suppliers who charge $8 more for each unit. Management believes that the "Made in the USA" label would increase sales volume by 14% and would allow the company to increase the sales price by $9 per unit. In addition, the company would have to spend an additional $4,000 in marketing costs to get the word out to potential customers of this change (Use parentheses or a minus sign for an operating loss.) Modest Seating Company Contribution Margin Income Statement Sales revenue Variable expenses Cost of goods sold Contribution margin Food expenses Operating income tows) ton Requirement 1 Operating income from implementing these changes would Time Remaining 02-45-40 Next Operating expenses