1. Applehead Technology is a company that purchases a device called the EyePod from a supplier and then sells the devices to retail customers. Applehead ships to its customers FOB destination. Applehead is seeking to increase its operating profit as much as possible. If it makes no changes in its operations, the company expects the following for the coming year.

# of units sold 30,000

Price $300 per unit

Shipping costs $ 3 per unit

Cost of merchandise $160 per unit

Rent of facilities and equipment $ 1,000,000

Managerial and administrative salaries $ 1,500,000

Knowing that the company wishes to increase its operating profit, Maria Garcia, the marketing manager, says I think we should make 2 changes: first, reduce our price to $285 and, second, we should begin to ship FOB shipping point. If we take these actions, I estimate we will increase the number of units sold to 32,500.

1. On the spreadsheet provided, prepare contribution margin income statements to analyze each of the 2 possibilities for the coming year, namely

   1. Applehead makes no changes

   2. Applehead adopts Garcias proposal

Make no changes Total Adopt Marketing Manager's proposal Total Show Computation Show Computation Sales Variable Costs Contribution Margin Fixed Costs Operating Profit