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Each question refers to the same initial data. Treat each Part individually. Ignore income taxes. Assume no beginning or ending inventories. Calculations and backup should be completed and submitted in Excel. Use proper Contribution Income Statement formatting example below. Analysis can either be typed into cells in Excel (formatted to be easily legible) or typed into a text box in Excel. One Excel file is to be submitted for this case study.

Data for all questions: Spatula City produces aluminum spatulas. Their spatulas are sold at many department stores across the country. The cost of manufacturing and marketing their spatulas, at their normal factory volume of 50,000 spatulas per month, is shown in the table below. These spatulas sell for $10 each. Spatula City is making a small profit, but would prefer to increase their Operating Income.

Hint: Fixed costs are shown on a per-unit basis in the table based on normal volume. However, fixed costs as a total do not change when volume changes, so you will need to determine total fixed costs first.

Data for all Questions:

Questions:

Part 1:

A) Prepare a Contribution Margin Income Statement for the company using the given financial data at their normal factory volume. Include line items for each type of cost as well as subtotals for the variable and fixed costs.

B) What is the break-even point in units? (Show your calculations.)

C) What is the break-even point in sales dollars? (Show your calculations.)

D) Using a Contribution Margin Income Statement, verify that your calculated break-even volume results in Operating Income of Zero. (Prepare the entire Contribution Margin statement at the break-even level.)

Part 2:

A kitchen-goods chain has offered to purchase 40,000 spatulas (one time in one month) if the sales price was lowered to $8 per spatula for that sale. Spatula Citys maximum capacity is 70,000 units, and this special sale would not impact the sales prices of their normal sales to the department stores.

A) Based on the cost data provided, what would be the impact of the price decrease on sales, costs, and operating income if Spatula City accepted this sale? Prepare a contribution margin income statement to show your results.

B) Do you think Spatula City should accept this sale? Support your decision with evidence and analysis.

Hint: Compare your contribution margin income statement including the special sale to the companys normal contribution margin income statement.

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