Determine the degree of operating leverage for each approach at current sales levels. (Round answers to 2 decimal places, e.g. 2.25.) Degree of operating leverage Current approach How much would the company's net income decline under each approach with a 10% decline in sales? (Round answers to 1 decimal place, e.g. 22.5%.) For a 10% drop in sales net income would For a 10% drop in sales net income would by Automated approach by % for Current approach % for Automated approach
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- Alberta Gauge Company, Ltd., a small manufacturing company in Calgary, Alberta, manufactures three types of electrical gauges used in a variety of machinery. For many years the company has been profitable and has operated at capacity. However, in the last two years, prices on all gauges were reduced and selling expenses increased to meet competition and keep the plant operating at capacity. Second-quarter results for the current year, which follow, typify recent experience. Alice Carlo, the company’s president, is concerned about the results of the pricing, selling, and production prices. After reviewing the second-quarter results, she asked her management staff to consider the following three suggestions: Discontinue the R-gauge line immediately. R-gauges would not be returned to the product line unless the problems with the gauge can be identified and resolved. Increase quarterly sales promotion by $100,000 on the Q-gauge product line in order to increase sales volume by 15 percent.…Gateway Construction Company, run by Jack Gateway, employs 25 to 30 people as subcontractors for laying gas, water, and sewage pipelines. Most of Gateway’s work comes from contractswith city and state agencies in Nebraska. The company’s sales volume averages $3 million, andprofits vary between 0 and 10% of sales.Sales and profits have been somewhat below average for the past 3 years due to a recessionand intense competition. Because of this competition, Jack constantly reviews the prices thatother companies bid for jobs. When a bid is lost, he analyzes the reasons for the differencesbetween his bid and that of his competitors and uses this information to increase the competitiveness of future bids.Jack believes that Gateway’s current accounting system is deficient. Currently, all expensesare simply deducted from revenues to arrive at operating income. No effort is made to distinguish among the costs of laying pipe, obtaining contracts, and administering the company. Yetall bids are…Phoenix Press produces consumer magazines. Thehouse and home division, which sells home-improvement and home-decorating magazines, has seen a 20%reduction in operating income over the past 9 months, primarily due to an economic recession and a depressedconsumer housing market. The division’s controller, Sophie Gellar, has felt pressure from the CFO toimprove her division’s operating results by the end of the year. Gellar is considering the following options forimproving the division’s performance by year-end: a. Cancelling two of the division’s least profitable magazines, resulting in the layoff of 25 employees.b. Selling the new printing equipment that was purchased in January and replacing it with discardedequipment from one of the company’s other divisions. The previously discarded equipment no longermeets current safety standards.c. Recognizing unearned subscription revenue (cash received in advance for magazines that will bedelivered in the future) as revenue when cash is received…
- Phoenix Press produces consumer magazines. Thehouse and home division, which sells home-improvement and home-decorating magazines, has seen a 20%reduction in operating income over the past 9 months, primarily due to an economic recession and a depressedconsumer housing market. The division’s controller, Sophie Gellar, has felt pressure from the CFO toimprove her division’s operating results by the end of the year. Gellar is considering the following options forimproving the division’s performance by year-end:a. Cancelling two of the division’s least profitable magazines, resulting in the layoff of 25 employees.b. Selling the new printing equipment that was purchased in January and replacing it with discardedequipment from one of the company’s other divisions. The previously discarded equipment no longermeets current safety standards.c. Recognizing unearned subscription revenue (cash received in advance for magazines that will bedelivered in the future) as revenue when cash is received…ABC Company is a manufacturing firm and has operated for twenty years now. As a very established company, they have maintained a gross profit margin of 20% of cost and this is being implemented in present and future years as a sign that the company is indeed stable and profitable. Last year, after their physical count, it was discovered that some units worth P25,000 were still not completed and are expected to be so on the next production cycle. The warehouse also contained 1,000 units and was already in the process of shipment before the cut-off date. They were valued at P17.5 per piece. On the corner of the warehouse, a box containing materials in the amount of P18,000 was not yet used. Because of the very precise nature of production, it was always expected that the ratio of purchase and usage of direct and indirect materials is 3:1. Transactions relating to its operations for the first month are as follows: Purchased raw material on account P28,500 then put all available raw…HH Co. uses corrugated cardboard to ship its product to customers. Currently, the company’s returns department incurs annual overhead costs of $72,000 and forecasts 2,000 returns per year. Management believes it has found a better way to package its products. As a result, the company expects to reduce the number of shipments that are returned due to damage by 5%. In addition, the initiative is expected to reduce the department’s annual overhead by $12,000. Compute the returns department’s standard overhead rate per return (a) before the sustainability improvement and (b) after the sustainability improvement. Round to the nearest cent.
- HH Co. uses corrugated cardboard to ship its product to customers. Currently, the company’s returns department incurs annual overhead costs of $126,000 and forecasts 6,000 returns per year. Management believes it has found a better way to package its products. As a result, the company expects to reduce the number of shipments that are returned due to damage by 3%. In addition, the initiative is expected to reduce the department’s annual overhead by $14,000.Compute the returns department’s standard overhead rate per return (a) before the sustainability improvement and (b) after the sustainability improvement.The Variable Speed Company manufactures a line of high-quality tools. The company sold 1,110,000 hammers at a price of $5.10 per unit last year. The company estimates that this volume represents a 25% share of the current hammers market. The market is expected to increase by 5%. Marketing specialists have determined that, as a result of a new advertising campaign and packaging, the company will increase its share of this larger market to 30%. Due to changes in prices, the new price for the hammer will be $5.40 per unit. This new price is expected to be in line with the competition and have no effect on the volume estimates. What are the estimated sales revenues in the coming year? $7,132,860 $7,192,800 $7,552,440 $7,930,162The Variable Speed Company manufactures a line of high quality tools. The company sold 1,130,000 hammers at a price of $5.3 per unit last year. The company estimates that this volume represents a 25% share of the current hammers market. The market is expected to increase by 5%. Marketing specialists have determined that, as a result of a new advertising campaign and packaging, the company will increase its share of this larger market to 30%. Due to changes in prices, the new price for the hammer will be $5.60 per unit. This new price is expected to be in line with the competition and have no effect on the volume estimates. What are the estimated sales revenues in the coming year? Multiple Choice $7,546,140. $7,593,600. $7,973,280. $8,372,044.
- In response to intensive foreign competition, the management of Florex Company has attempted over the past year to improve the quality of its products. A statistical process control system has been installed and other steps have been taken to decrease the amount of warranty and other field costs, which have been trending upward over the past several years. Costs relating to quality and quality control over the last two years are given below: Costs (in thousands) Last This Year Year $ 1,584 Inspection Quality engineering Depreciation of test eguipment 765 540 675 630 225 $ 1,260 $ 1,620 225 Rework labor Statistical process control Cost of field servicing $ 1,710 1,170 81 Supplies used in testing Systems development Warranty repairs Net cost of scrap Product testing Product recalls 45 630 900 1,260 24 4,140 1,530 $ 1,440 990 540 900 $ 2,700 900 Disposal of defective products 900 Sales have been flat over the past few years, at $90,000,000 per year. A great deal of money has been spent in…Ethel Company manufactures and sells desk lamps for hotel and motel rooms. Last year, it sold 120,000 units of its model Y lamp for $45 per unit. The company estimates that this volume represents a 24 percent share of the current market. The market is expected to increase by 8 percent next year. Marketing specialists have determined that as a result of new competition, the company's market share will fall to 20 percent (of this larger market). Due to changes in production costs and competitive models, the new price for the lamps will be $48 per unit. The revised volume estimates are based on the $48 price. Required: Estimate Ethel Company's sales revenues from model Y lamps for the coming year.In the current year, Big Burgers, Inc., expanded its fast-food operations by opening several new stores in Texas. The company incurred the following costs in the current year: market appraisal ($50,000), consulting fees ($72,000), advertising ($47,000), and traveling to train employees ($31,000). The company is willing to incur these costs because it foresees strong customer demand in Texas for the next several years. What amount should Big Burgers report as an expense in its income statement associated with these costs?