on breakeven. Then look at the following five pricing options/scenarios: 1. Lower the selling price by 10% to increase sales volume by 5%. 2. Advertise on radio and social media for a combined cost of $1,000 to increase volume by 10%. 3. Use a more affordable paper on which to print the posters (available for $ 0.60 per unit), in combination with a less - expensive film to coat the surface of the poster (available for $ 0.40 per unit).

on breakeven. Then look at the following five pricing options/scenarios: 1. Lower the selling price by 10% to increase sales volume by 5%. 2. Advertise on radio and social media for a combined cost of $1,000 to increase volume by 10%. 3. Use a more affordable paper on which to print the posters (available for $ 0.60 per unit), in combination with a less - expensive film to coat the surface of the poster (available for $ 0.40 per unit).

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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Question

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. You agree to help Lorenzo and ask him for some
current information about his products' selling price and costs. You tell him you will work through some
possible scenarios that might involve changing his sales price to generate the number of units sold needed
to reach his target profit. Lorenzo shares the following information with you as you ponder different
scenarios to help your client. Selling price $7.50 Cost for paper, per unit $0.70 Cost for printing, per unit $
1.10 Cost for film, per unit $0.60 Staff salaries $48,000.00 Other operating costs $12, 120.00 Using Lorenzo'
s data and proper Excel formulas, first, plan to get an understanding of Lorenzo's financial situation based
on breakeven. Then look at the following five pricing options/scenarios: 1. Lower the selling price by 10%
to increase sales volume by 5%. 2. Advertise on radio and social media for a combined cost of $1,000 to
increase volume by 10%. 3. Use a more affordable paper on which to print the posters (available for $
0.60 per unit), in combination with a less - expensive film to coat the surface of the poster (available for $
0.40 per unit).

Option 1
Contribution Margin Income Statement
Sales
Less Variable Costs:
Contribution Margin
Less Fixed Costs
Operating Income
New Selling Price
New Sales Volume Units
[Insert forumla]
[Insert formula]
[Insert formula]
[Insert formula]
[Insert formula]
[Insert value]
[Insert value]
Option 2
Contribution Margin Income Statement
Sales
Less Variable Costs:
Contribution Margin
Less Fixed Costs
Operating Income
New Fixed Costs
New Sales Volume Units
[Insert formula]
[Insert formula]
[Insert formula]
[Insert formula]
[Insert formula]
[Insert value]
[Insert value]
Option 3
Contribution Margin Income Statement
Sales
Less Variable Costs:
Contribution Margin
Less Fixed Costs
Operating Income
New Variable Cost per unit
[Insert formula]
[Insert formula]
[Insert formula]
[Insert formula]
[Insert formula]
[Insert value}

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Step 1: Calculation of Break even point at existing scenario for desired profit

Step 2: Scenario-1

Step 3: Scenario-2

Step 4: Scenario-3

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