2. Applehead Technology is a company that purchases a device called the EyePod from a supplier and then sells the devices to retail customers. Applehead ships to its customers FOB shipping point. Applehead is seeking to increase its operating profit as much as possible. If it makes no changes in its operations, the company expects the following for the coming year. # of units sold 30,000 Price $300 per unit Shipping costs $ 3 per unit Cost of merchandise $160 per unit Rent of facilities and equipment $ 1,000,000 Managerial and administrative salaries $ 1,500,000 Knowing that the company wishes to increase its operating profit, Maria Garcia, the marketing manager, says “I think we should make 2 changes: first, reduce our price to $290 and, second, we should begin to ship FOB destination. If we take these actions, I estimate we will increase the number of units sold to 32,000.” a. On the spreadsheet provided, prepare contribution margin income statements to analyze each of the 2 possibilities for the coming year, namely i. Applehead makes no changes ii. Applehead adopts Garcia’s proposal b. Given Applehead’s goal of maximizing its operating profit, based solely on your calculations, should it make the change that the marketing manager suggests? Why or why not? Answer in about a sentence in the space provided on the spreadsheet. For question #2a Adopt Marketing Make no changes Manager’s Proposal Total Computation Total Computation Sales Variable Costs Contribution Margin Fixed Costs Operating Profit For question #2b: c. If the company does not adopt Garcia’s proposals, how many EyePods (units) would it need to sell in order to break even? Show all work in the space provided. d. If the company did not adopt Garcia’s proposals and actually sells the 30,000 units at $300 each, what is its margin of safety, expressed as a percent? Show all work in the space provided. (round to second decimal places)
2. Applehead Technology is a company that purchases a device called the EyePod from a supplier and then sells the devices to retail customers. Applehead ships to its customers FOB shipping point. Applehead is seeking to increase its operating profit as much as possible. If it makes no changes in its operations, the company expects the following for the coming year.
# of units sold 30,000
Price $300 per unit
Shipping costs $ 3 per unit
Cost of merchandise $160 per unit
Rent of facilities and equipment $ 1,000,000
Managerial and administrative salaries $ 1,500,000
Knowing that the company wishes to increase its operating profit, Maria Garcia, the marketing manager, says “I think we should make 2 changes: first, reduce our price to $290 and, second, we should begin to ship FOB destination. If we take these actions, I estimate we will increase the number of units sold to 32,000.”
a. On the spreadsheet provided, prepare contribution margin income statements to analyze each of the 2 possibilities for the coming year, namely
i. Applehead makes no changes
ii. Applehead adopts Garcia’s proposal
b. Given Applehead’s goal of maximizing its operating profit, based solely on your calculations, should it make the change that the marketing manager suggests? Why or why not? Answer in about a sentence in the space provided on the spreadsheet.
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For question #2a |
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Adopt Marketing |
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Make no changes |
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Manager’s Proposal |
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Computation |
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Computation |
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Sales |
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Variable Costs |
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Contribution Margin |
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Fixed Costs |
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Operating Profit |
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For question #2b:
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c. If the company does not adopt Garcia’s proposals, how many EyePods (units) would it need to sell in order to break even? Show all work in the space provided.
d. If the company did not adopt Garcia’s proposals and actually sells the 30,000 units at $300 each, what is its margin of safety, expressed as a percent? Show all work in the space provided. (round to second decimal places)
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