Lorenzo, the owner of a local poster shop, comes to you for help. While his shop has been breaking even for the past two years, it has not been able to generate a profit. For him to keep the shop open, he needs to earn at least $12,000 in operating income next year.Review the contribution margin income statements for Lorenzo's shop and find the following:1)Explain the benefits and advantages to the company for each scenario.2)Explain the disadvantages to the company for each scenario. Option AContribution Margin Income StatementCONTRIBUTION MARGIN BASED ON THE PRICE INCREASE OF $9.25Option BContribution Margin Income StatementSales$114,496.50Sales$119,954.00Less Variable Costs:$29,707.20Less Variable Costs:$31,123.20Contribution Margin$84,789.30Contribution Margin$88,830.80Less Fixed Costs60,120.00Less Fixed Costs$61,120.00Operating Income$24,669.30Operating Income$27,710.80Income tax (25%)$6,167.33Income tax (25%)$6,927.70Net Income after tax$18,501.98Net Income after tax$20,783.10New selling price$9.25New Selling Price$9.25New Sales Volume Units12378.00New Fixed Costs$61,120.00New Sales Volume Units12968.00CONTRIBUTION MARGIN BASED ON PRICE OF $6.75Option BOption AContribution Margin Income StatementContribution Margin Income StatementSales$83,551.50Sales$97,260.00Less Variable Costs:$29,707.20Less Variable Costs:$31,123.20Contribution Margin$53,844.30Contribution Margin$66,136.80Less Fixed Costs$60,120.00Less Fixed Costs$61,120.00Operating Income$(6,275.70)Operating Income$5,016.80New Selling Price$New Sales Volume Units6.7512378.00New Fixed CostsNew Sales Volume Unitses61,120.0012968.00

1) Contribution:Amount of profit that is generated by per unit to cover fixed cost.Higher the…

Answered: )Explain the benefits and advantages to…

Business

Accounting

)Explain the benefits and advantages to the company for each scenario.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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