Jen & Berry’s sold 100,000 pints of ice cream last monthaccording to the following contribution format income statement

Total Per Unit

SALES    $330,000    $3.30

VARIABLE COSTS 200,000 2.00

CONTRIBUTION MARGIN $ 130,000 $ 1.30

FIXED COSTS 50,000

NET INCOME $ 80,000

A competing company, Un-Friendly’s, also sold 100,000 pints ofice cream last month according to the following contribution formatincome statement:

Total Per Unit

SALES $255,000 $2.55

VARIABLE COSTS 100,000 1.00

CONTRIBUTION MARGIN $ 155,000 $ 1.55

FIXED COSTS 75,000

NET INCOME $ 80,000

Both companies sold the same amount of ice cream and had thesame Net Income but have different price and cost structures. Jen& Berry’s uses higher quality ingredients (variable cost) andcharges a higher price than its competitor. Un-Friendly’s spendsmore on advertising (fixed cost) and sells at a lower price thanJen & Berry’s.

5.Using last month’s income statements on page 2, calculate thesafety margin in units (pints of ice cream) for each company.

6.Jen & Berry’s is considering two options to increase salesnext month (and hopefully profit):

Option #1:

Double the pints sold next month by decreasing the price by 15cents to $3.15.

Option #2:

Double the pints sold next month by spending an additional$20,000 next month

(fixed cost) on advertising. Price of ice cream remains at $3.30per pint.

Which option should Jen & Berry’s choose?? Explain youranswer by showing calculations for both options.

7.Un-Friendly’s is considering the same two options to increasesales next month (and hopefully profit):

Option #1:

Double the pints sold next month by decreasing the price by 15cents to $2.40.

Option #2:

Double the pints sold next month by spending an additional$20,000 next month

(fixed cost) on advertising. Price of ice cream remains at $2.55per pint.

Which option should Un-Friendly’s choose?? Explain your answerby showing calculations for both options.