Given the following information for the Rajin’ Cajun line, what is management’s best option for increasing the product line’s operating income by $10,000?
Given the following information for the Rajin’ Cajun line, what is management’s best option for increasing the product line’s operating income by $10,000?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Pain is Good Company manufactures a line of premium hot sauces. The company’s managers would like to increase the operating income generated from its best selling sauce Rajin’ Cajun. The product’s sales staff is doubtful that the current customer base would accept a price increase. However, they are confident that the product’s customer base can be expanded without incurring any additional costs. Management has concluded after consulting with key members of the product’s manufacturing and sales teams that all costs for the product line are currently at the lowest level possible. Given the following information for the Rajin’ Cajun line, what is management’s best option for increasing the product line’s operating income by $10,000?
Sales Price . . . $5.00
Unit Fixed Cost at current sales volume . . . $0.50
Total Variable Costs at current sales volume . . . $8,750
Current Sales Volume . . . 5,000 units
Eliminate fixed costs and decrease variable cost per unit by $1.50. No change in sales price or sales volume.
Increase sales volume by 3,077 units. No change in sales price or costs.
Increase unit contribution margin by $2.00. No change in sales volume or fixed costs.
Increase sales volume by 2,223 units. No change in sales price or costs.
Increase sales price by $1.25 per unit and increase sales volume by 834 units. No change in costs.
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