Manson Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $40 throughout the country to loyal alumni of over 1,000 schools. Manson's variable costs are 40% of sales; fixed costs are $120,000 per month.
Required:
| a. | Manson currently sells 100,000 blankets per year. If sales volume were to increase |
by 12%, by how much would operating income increase?
| b. | Assume that variable costs increase to 45% of the current sales price and fixed costs |
increase by $10,000 per month. If Manson were to raise its sales price 10% to cover
these new costs, but the number of blankets sold were to drop by 5%, what would
be the new annual operating income?
| c. | If variable costs and fixed costs were to change as in part (c), would Manson be |
better off raising its selling price and losing volume or keeping the selling price
at $40 and selling 100,000 blankets? Why?
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