Managerial Accounting: E2-12B Bland and Strand compete in the same market

Managerial Accounting 
Exercise 2-12B Effect of cost structure on projected profits 
Bland and Strand compete in the same market. The following budgeted income statements illustrate their cost structures: 
Income Statements 
Company 
Bland Strand 
Number of customers (a) 100 100 
Sales revenue (a x $100) 10,000 10,000 
Variable cost (a x $64) N/A 6,400 
Contribution margin 10,000 3,600 
Fixed costs (6,400) N/A 
Net income $3,600 $3,600 

Required 
a. Assume that Bland can lure all 100 customers away from Strand by lowering its sales price to $60 per customer. Reconstruct Bland’s income statement based on 200 customers. 
b. Assume that Strand can lure all 100 customers away from Bland by lowering its sales price to $60 per customer. Reconstruct Strand’s income statement based on 200 customers. 
c. Why does the price-cutting strategy increase Bland’s profits but result in a net loss for Strand?
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