Leather Accessories produces leather belts and key fobs that sell for $40 and $10, respectively. The company currently sells 100,000 units of each type with the following operating results:

Corporate management has expressed its disappointment with the income being generated from the sales of these two products. Managers have asked for your help in analyzing three alternative plans to improve operating results.
1. Change the sales commission to 12 percent of sales price less variable production costs for each product from the current 5 percent of selling price. The marketing manager believes that the sales of the belts will decline by 5,000 units but those of key fobs will increase by 15,000 units.
2. Increase the advertising budget for belts by $75,000. The marketing manager believes this will increase the sales of belts by 19,000 units but will decrease the sales of key fobs by 9,000 units.
3. Raise the per-unit price of belts by $5 and of key fobs by $3. The marketing manager believes this will cause a decrease in the sales of belts by 6,000 units and of key fobs by 10,000 units.
a. Determine the effects on the income of each product line and the company in total if each alternative plan is put into effect.
b. What is your recommendation to the management of LeatherAccessories?

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Sales (100,000 x $40) Variable costs $4,000,000 $2,500,000 Production (100,000 x S25) Selling (100,000 x $6) 3,100,000) 900,000 Contribution margin Fixed costs $ 400,000 180000 (580,000 5 320,000 Selling and administrative Key Fobs Sales (100,000 x S10) Variable costs $1,000,000 Production (100,000 x $6) Selling (100,000 × $1 ) 600,000 100,000 700,000) Contribution margin Fixed costs S300,000 $ 100,000 Selling and administrative 80,000 (180,000)