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Problem B (26 points Solution: Show your your analysis in organized schedules as much as possi ble. A schedule for completing Requirement # 1 is provided for you. Be sure to properly link cells and use formulas where Block Ltd makes BLOCKS. Their pre-tax incomeand their margin of safety have both been low compared to the levels the company would Ilike to achleve. Consequently, they asked their employees to do some research applicable. and come up with suggestions that would result in increases of both pre-tax income and their margin of Requirement 1: safety over the next year. The current pricing structure consists of the following data points: Current Year Scenario 1 Scenario 2 Scenario 3 Selling price $34.50 Selling price $34.50 41,500 Unit volume Unit volume 41,500 Variable costs per unit: Varlable costs per unit: Direct labor $9.80 Material Material $5.75 $9.80 Direct labor $5.75 Overhead S0.65 Overhead $0.65 Packaging $1.00 Packaging $1.00 Fixed costs: Fixed costs: $ 285,000 Manufacturing Selling and administrative Manufacturing Selling and administrative $285,000 $370,000 370,000 Break Even Analysis: Three employee teams have come up with different plans to Improve pre-tax Income and the marglin of safety for next year. Respond to Required Items #1,2, & 3 for the Current Year and for each of the Three Scenarios supgested by the employee teams. Answer Required Item #4 for each of the Three Scenarios and then make the declslon requested In Required Item #5 In Units In Sales Dollars Requirement 2: Required: 1. Compute the Break-Even polnt in both units and sales dollars for the Current Data and each ofthe Three Scenarios. (4 points) 2. Provide a Contribution Marpin Income Statement in proper form for the Current Data and each ofthe Three Scenarios. (9 points) 3. Provide the Margin of Safety calculation for the Current Data and each of the Three Scenarios. (4 points) 4. Briefly, list two pros and two cons that you consider important when comparing the results of implementing cach of the Three Scenarios. (6 points) 5. Choose the Scenario that you would recommend to the company and briefly explain why it isthe best choice. (3 paints) Requirement 3: Current Data-Check Figure: Margin of Safety = 8.77 % Requirement 4 40 Requirement 4: Scenario 1-Check Figure: CM% = 57.76% Research indicates that the company can purchase a different material, of equal quality, to construct the Scenario 1: 41 42 Pros: blocks. This would reduce material costs by 18% Using the new material would also resultin a 15% reduction in direct labor costs. All other data points remain constant. 43 44 45 Cons: 46 Scenario 2-Check Figure: BE in Units = 28,872 Research indicates that the company can purchase a different material, of equal quality, to construct the blocks. This would reduce material costs by 18%. 47 48 Scenario 2: 49 Using the new material would also result in a 15% reduction in direct labor costs. Market research indicates that the company could increase the selling price by 8%, but that doing so would result in a 5% decrease in units sold 50 Pros: 51 52 All other data points remain constant. 53 Cons: 54 Scenario 3--Check Figure: Pre-tax Income = $272,802 Negotiations with suppliers resulted in an agreement that would decrease the cost of the same new 55 56 material mentioned in Scenarios 1 and 2 by 25% ifthe company purchased it in bulk. To use up the material purchased in the amounts required to get the discount, the company would need Scenario 3: 57 58 Pros: to increase sales unit volume by 35%. Market research indicates that this is possible as long as the selling 59 price is decreased by 15% Market research also indicates that improved packaging would be needed to achieve the needed sales 60 61 Cons: volume levels. The packaging costs would increase by 20% Direct labor costs would remain the same as they were in Scenarios 1 and 2. 62 63 64 65 Requirement 5-Recommendation: 66 67