[LO 9-3] 9-23 Structuring Sales Commissions Questar Electronics, a producer of a wide range of consumer products, is facing increasing competitive pressures from foreign producers. In response, Questar is reexamining its overall management control system, including the way the company compensates members of its sales force, who currently earn a 10% commission on sales. Below are highly con- densed data for two representative products that Questar sells: Alpha Omega $100 $125 Selling price per unit Variable manufacturing cost per unit Manufacturing contribution margin 80 110 $ 20 $ 15 Required 1. What is the contribution margin for each product?

[LO 9-3] 9-23 Structuring Sales Commissions Questar Electronics, a producer of a wide range of consumer products, is facing increasing competitive pressures from foreign producers. In response, Questar is reexamining its overall management control system, including the way the company compensates members of its sales force, who currently earn a 10% commission on sales. Below are highly con- densed data for two representative products that Questar sells: Alpha Omega $100 $125 Selling price per unit Variable manufacturing cost per unit Manufacturing contribution margin 80 110 $ 20 $ 15 Required 1. What is the contribution margin for each product?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter12: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 12.4E

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8. Lean as a Strategy The American textile industry has moved much of its operations offshore in the pursuit of lower labor costs. Textile imports have risen from 2% of all textile production in the early 1960s to over 70%. Offshore manufacturers make long runs of standard mass-market apparel items. These are then brought to the United States in container ships, requiring significant time between original order and delivery. As a result, retail customers must accurately forecast market demands for imported apparel items. Rather than competing with the offshore manufacturers on price in the textile industry, some U.S companies are: a.providing smaller quantities with much faster delivery. b.producing much larger batches with a strategy of flooding the market. c.making large order commitments to control the fashion market. d."providing smaller quantities with much faster delivery", "producing much larger batches with a strategy of flooding the market", and "making large order…
Exercise 11-7 (Algo) Transfer Pricing from the Viewpoint of the Entire Company (LO11-3] Division A manufactures electronic circuit boards that can be sold to Division B of the same company or to outside customers. Last year, the following activity occurred in Division A: Selling price per circuit board Variable cost per circuit board Number of circuit boards: Produced during the year Sold to outside customers Sold to Division B $ 189 $ 120 20,300 14,500 5,800 Sales to Division B were at the same price as sales to outside customers. The circuit boards purchased by Division B were used in an electronic instrument manufactured by that division (one board per instrument). Division B incurred $300 in additional variable cost per instrument and then sold the instruments for $690 each. Required: 1. Calculate the net operating incomes earned by Division A, Division B, and the company as a whole. 2. Assume Division A's manufacturing capacity is 20,300 circuit boards. Next year, Division B wants…
Danna Martin, president of Mays Electronics, was concerned about the end-of-the year marketing report that she had just received. According to Larry Savage, marketing manager, a price decrease for the coming year was again needed to maintain the companys annual sales volume of integrated circuit boards (CBs). This would make a bad situation worse. The current selling price of 18 per unit was producing a 2-per-unit profithalf the customary 4-per-unit profit. Foreign competitors kept reducing their prices. To match the latest reduction would reduce the price from 18 to 14. This would put the price below the cost to produce and sell it. How could these firms sell for such a low price? Determined to find out if there were problems with the companys operations, Danna decided to hire a consultant to evaluate the way in which the CBs were produced and sold. After two weeks, the consultant had identified the following activities and costs: The consultant indicated that some preliminary activity analysis shows that per-unit costs can be reduced by at least 7. Since the marketing manager had indicated that the market share (sales volume) for the boards could be increased by 50% if the price could be reduced to 12, Danna became quite excited. Required: 1. CONCEPTUAL CONNECTION What is activity-based management? What phases of activity analysis did the consultant provide? What else remains to be done? 2. CONCEPTUAL CONNECTION Identify as many nonvalue-added costs as possible. Compute the cost savings per unit that would be realized if these costs were eliminated. Was the consultant correct in the preliminary cost reduction assessment? Discuss actions that the company can take to reduce or eliminate the nonvalue-added activities. 3. Compute the unit cost required to maintain current market share, while earning a profit of 4 per unit. Now compute the unit cost required to expand sales by 50%, assuming a per-unit profit of 4. How much cost reduction would be required to achieve each unit cost? 4. Assume that further activity analysis revealed the following: switching to automated insertion would save 60,000 of engineering support and 90,000 of direct labor. Now, what is the total potential cost reduction per unit available from activity analysis? With these additional reductions, can Mays achieve the unit cost to maintain current sales? To increase it by 50%? What form of activity analysis is this: reduction, sharing, elimination, or selection? 5. CONCEPTUAL CONNECTION Calculate income based on current sales, prices, and costs. Then calculate the income by using a 14 price and a 12 price, assuming that the maximum cost reduction possible is achieved (including Requirement 4s reduction). What price should be selected?
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