Edward Rogers is a notary public with his business located in Tofino, BC. Since he recently separated from his wife, they are discussing how they will split their assets once divorce procedures complete. On that note, Edward’s lawyer has asked for a balance sheet for Edward’s business to help value it. Edward has asked you to prepare the balance sheet. You gather the following information (see below).
WeLoveBabies Company sells a baby food maker for $30 per unit. Variable costs are $15 per unit, and fixed costs total $162,000 annually.
Answer the following independent questions:
4-a. Refer to the original data. Assume that the company sold 24,000 units last year. The sales manager is convinced that a 11% reduction in the selling price, combined with a $31,000 increase in advertising expenditures, would cause annual sales in units to increase by 25%. Prepare two contribution format income statements, one showing the results of last year’s operations and one showing what the results of operations would be if these changes were made.
4-b. Would you recommend that the company do as the sales manager suggests?