Deckyard Company distributes a lightweight lawn chair that sells for $27 per unit. Variable expenses are $13.50 per unit, and fixed expenses total $65,250 annually.
1. Refer to the original data. Assume that the company sold 39,500 units last year. The sales manager is convinced that a 8% reduction in the selling price, combined with a $41,500 increase in advertising expenditures, would increase annual unit sales by 50%.
a. Prepare two contribution format income statements, one showing the results of last year’s operations and one showing what the results of operations would be if these changes were made.(Do not round intermediate calculations. Round your "Per unit" answers to 2 decimal places.)
2. Refer to the original data. Assume again that the company sold 39,500 units last year. The president feels that it would be unwise to change the selling price. Instead, he wants to increase the sales commission by $1.60 per unit. He thinks that this move, combined with some increase in advertising, would double annual unit sales. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach.