PROBLEM 3 (33 points)

Applehead Technology is a company that purchases a device called the EyePod from a supplier and then sells the devices to retail customers.If the company makes no changes in its operations, the company expects the following for the coming year.

# of units sold30,000

Price$300 per unit

Cost of merchandise$100 per unit

Rent and Salaries for the year$1,300,000

The company is holding a meeting to discuss ways to increase its profit - that is the company's goal.At that meeting, Maria Garcia, the marketing manager, says "If we make the changes I suggest, I think we can attract more customers and increase our share of the market.Currently, our customers pay for shipping.Market research says customers hate shipping charges, so rather than having customers pay it, we should pay it.Shipping would cost us $3 per unit.Market research also shows that our prices are not competitive.So, we should lower our price to $270.If we take these actions, I estimate we will increase the number of units sold to 32,000."

1. On the spreadsheet provided on the next page labeled "For Problem 3a", prepare the contribution margin income statements to analyze each of the 2 possibilities for the coming year, namely

i.Applehead makes no changes

ii.Applehead adopts Garcia's proposal

For Problem 3a: Contribution Show your work for Make No Show your work Garcia's Margin Income Applebead's Makes No Changes for Garcia's Proposal Statement Changes Results Proposal Results Sales Variable Cost Contribution Margin Fixed Cost Operating Income