Bollinger Company's 2016 Income Statement Is as Follows

question 41

Essay

Bollinger Company's 2016 income statement is as follows:
In an attempt to improve the company's profit performance, management is considering a number of alternative
actions.
Required:
Determine the effect of each of the following on monthly profit. Each situation is to be evaluated independently of all the others.
a. Purchasing automated assembly equipment. This action should reduce direct labor costs by 40 percent. It also will increase variable overhead costs by 10 percent and fixed factory overhead by $2,500.
b. Reducing the unit selling price by $2 per unit. This should increase the monthly sales by 5,000 units. Fixed factory overhead will increase by $1,500.
c. Increase fixed selling and administrative expenses by $1,000 for advertising costs. The number of units sold will increase to 8,000 units.

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Definitions:

Co-insurance Clause

A provision in insurance policies that requires the policyholder to bear a portion of the costs of a claim, encouraging insured parties to not underinsure their assets.

Fireproof

A property or material that is resistant to or capable of withstanding damage from fire.

Insured

The individual or entity covered under an insurance policy and protected against specified risks or losses.

Just-In-Time

A management strategy that aligns raw-material orders from suppliers directly with production schedules to reduce inventory costs.