Question

Vista Seating Company is currently selling 2 comma 200 oversized bean bag chairs a month at a price of ​$75 per chair. The variable cost of each chair sold includes ​$40 to purchase the bean bag chairs from suppliers and a ​$9 sales commission. Fixed costs are $ 14 comma 000 per month. The company is considering making several operational changes and wants to know how the change will impact its operating income. Read the requirements LOADING.... Requirement 1. Prepare the​ company's current contribution margin income statement. ​(Use parentheses or a minus sign for an operating​ loss.) Vista Seating Company Contribution Margin Income Statement Sales revenue Variable expenses: Cost of goods sold Operating expenses Contribution margin Fixed expenses Operating income (loss) Requirement 2. Calculate the change in operating income that would result from implementing each of the following independent strategy alternatives. Compare each alternative to the current operating income as you calculated in Requirement 1. Consider each alternative separately. a. Alternative​ 1: The company believes volume will increase by 16​% if salespeople are paid a commission of 15​% of the sales price rather than the current ​$9 per unit. ​(Use parentheses or a minus sign for an operating​ loss.) Vista Seating Company Contribution Margin Income Statement Sales revenue Variable expenses: Cost of goods sold Operating expenses Contribution margin Fixed expenses Operating income (loss)

Answer 1

Vista Seating Company Contribution Margin Income Statement

Sales Revenue 2,000 X $75 $150,000

Variable Expenses:

Cost of goods sold 2,000 x $40 ($80,000)

Operating Expenses 2,000 x $9 ($18,000)

Contribution margin $52,000

Fixed expenses: $14,000

Operating income $38,000

Evaluating Alternative 1

The company believes volume will increase by 16​% if salespeople are paid a commission of 15​% of the sales price rather than the current ​$9 per unit.

Vista Seating Company Contribution Margin Income Statement

Sales Revenue (2,000 X 116%) X $75 $174,000

Variable Expenses:

Cost of goods sold (2,000 X 116%) x $40 ($92,800)

Operating Expenses (2,000 X 116%) x $75 X 15% ($26,100)

Contribution margin $55,100

Fixed expenses: $14,000

Operating income $41,100