Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows: 2,500 units $ 304 Annual sales Selling price per unit Variable costs per unit: Production Selling Avoidable fixed costs per year: Production $ 125 $49 $ 50,000 $ 75,000 $ 55,000 Selling Allocated common fixed corporate costs per year If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product. If the new product is added next year, the financial advantage (disadvantage) resulting from this decision would be:

Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows: 2,500 units $ 304 Annual sales Selling price per unit Variable costs per unit: Production Selling Avoidable fixed costs per year: Production $ 125 $49 $ 50,000 $ 75,000 $ 55,000 Selling Allocated common fixed corporate costs per year If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product. If the new product is added next year, the financial advantage (disadvantage) resulting from this decision would be:

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 40P

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Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?
Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of 22 each in the coming year. Total variable costs equal 1,086,800. Total fixed costs equal 8,000,000. (Round all ratios to four significant digits, and round all dollar amounts to the nearest dollar.) Required: 1. What is the contribution margin per unit? What is the contribution margin ratio? 2. Calculate the sales revenue needed to break even. 3. Calculate the sales revenue needed to achieve a target profit of 245,000. 4. What if the average price per unit increased to 23.50? Recalculate: a. Contribution margin per unit b. Contribution margin ratio (rounded to four decimal places) c. Sales revenue needed to break even d. Sales revenue needed to achieve a target profit of 245,000
Assume a company is considering adding a new product. The expected cost and revenue data for this product are as follows: Annual sales 5,000 units Unit selling price $ 60 Unit variable costs: Production $ 33 Selling $ 6 Incremental fixed costs per year: Production $ 34,500 Selling $ 45,000 If the company adds the new product, it expects the contribution margin of other product lines to drop by $15,300 per year. What is the financial advantage (disadvantage) of adding the new product? Multiple Choice $40,800 $10,200 $89,700 $25,500
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Assume a company is considering adding a new product line with the following estimated cost and revenue data: Annual sales Selling price per unit Variable manufacturing costs per unit Variable selling costs per unit Incremental fixed manufacturing costs Incremental fixed selling costs Allocated common fixed administrative costs $ $ $ 6,000 units 190 140 15 $66,000 per year $42,000 per year $48,000 per year If the new product line is added, the company expects that it will increase the sales of complementary products, thereby generating $36,000 in incremental contribution margin from those products. What is the lowest selling price per unit that could be charged for the new product line and still allow the company to break-even?
A company can generate a maximum sales of 825,000 a year. The variable cost ratio to sales is 55% and fixed costs are 128,430 a year. The desired net income for the year is 168,570. At what percentage capacity level should the company operate to realize the desired net income?
Suppose that a company expects the following financial results from a project during its first-year operation: Sales revenue: $300,000 Variable costs: $100,000 Fixed costs: $50,000 Total unit produced and sold: 10,000 units a. Draw and label a break-even point graph. b. Compute the contribution per unit. c. Compute the break-even point in units sold. d. Compute the profit be if only 7500 units are sold
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The Sunshine Company manufactures and sells pens. Currently, 6,000,000 units are sold per year at $0.70 per unit. Fixed costs are $980,000 per year. Variable costs are $0.30 per unit.Consider each case separately:Required:1. a. What is the current annual operating income?b. What is the current breakeven point in revenues?Compute the new operating income for each of the following changes:2. A $0.03 per unit increase in variable costs3. A 12% increase in fixed costs and a 10% increase in units sold4. A 18% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in variablecost per unit, and a 40% increase in units soldCompute the new breakeven point in units for each of the following changes:4. A 10% increase in fixed costs5. A 10% increase in selling price and a $20,000 increase in fixed costs(please give the solution of part 4,4,5 of this question, previous are already solved by you