Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $6.00 per case, has not had the market success that managers expected and the company is considering dropping Bubbs. The product-line income statement for the past 12 months follows: Revenue $ 14,704,650 Costs Manufacturing costs Allocated corporate costs (@5%) Product-line margin Allowance for tax (@20%) $ 14,447,895 735,233 15,183,128 (478,478) 95,695 Product-line profit (loss) 24 (382,783) All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a percentage of revenue. Data on corporate costs and revenues for the past two years follow: Most recent year Previous year Corporate Revenue $ 121,750, 000 77,700,000 Corporate Overhead Costs $ 6,087,500 5,109,590 Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given, Mr. Andre provides you with the following data on product costs for Bubbs: Month Cases Production Costs $1,164,340 1,185,840 1,194,493 1,210,035 1,212,339 1,233,185 1,208,211 1,251,286 1 222,000 224,700 222,400 243,000 250,450 252,000 227,750 254,700 246, 300 260,150 257,700 266,700 2 4 6. 7. 8 1,249,738 1,261,837 1,266,272 1,296,963 10 11 12
Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $6.00 per case, has not had the market success that managers expected and the company is considering dropping Bubbs. The product-line income statement for the past 12 months follows: Revenue $ 14,704,650 Costs Manufacturing costs Allocated corporate costs (@5%) Product-line margin Allowance for tax (@20%) $ 14,447,895 735,233 15,183,128 (478,478) 95,695 Product-line profit (loss) 24 (382,783) All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a percentage of revenue. Data on corporate costs and revenues for the past two years follow: Most recent year Previous year Corporate Revenue $ 121,750, 000 77,700,000 Corporate Overhead Costs $ 6,087,500 5,109,590 Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given, Mr. Andre provides you with the following data on product costs for Bubbs: Month Cases Production Costs $1,164,340 1,185,840 1,194,493 1,210,035 1,212,339 1,233,185 1,208,211 1,251,286 1 222,000 224,700 222,400 243,000 250,450 252,000 227,750 254,700 246, 300 260,150 257,700 266,700 2 4 6. 7. 8 1,249,738 1,261,837 1,266,272 1,296,963 10 11 12
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Need Assistance with A-C please!
Transcribed Image Text:Required:
a. Bunk Stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporate allocation (and
would not affect corporate costs). What is the minimum price Mr. Andre can offer Bunk without reducing profit any further?
b. How many cases of Bubbs does Luke have to sell in order to break even on the product?
c. Suppose Luke has a requirement that all products have to earn 5 percent of sales (after tax and corporate allocations) or they will be
dropped. How many cases of Bubbs does Mr. Andre need to sell to avoid seeing Bubbs dropped?
d. Assume all costs and prices will be the same in the next year. If Luke drops Bubbs, how much will Luke's profits increase or
decrease? Assume that fixed production costs can be avoided if Bubbs is dropped.
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
Required D
Bunk Stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporate allocation
(and would not affect corporate costs). What is the minimum price Mr. Andre can offer Bunk without reducing profit any
further? (Round your answer to 2 decimal places.(i.e., 32.21))
Minimum price
per case
< Required A
Required B >
Transcribed Image Text:Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and
began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $6.00 per case, has not had
the market success that managers expected and the company is considering dropping Bubbs.
The product-line income statement for the past 12 months follows:
Revenue
$ 14,704,65e
Costs
$ 14,447,895
Manufacturing costs
Allocated corporate costs (@5%)
Product-line margin
Allowance for tax (@20%)
735,233
15,183,128
$
(478,478)
95,695
Product-line profit (loss)
(382,783)
All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5
percent rate is computed based on the most recent year's corporate cost as a percentage of revenue. Data on corporate costs and
revenues for the past two years follow:
Most recent year
Previous year
Corporate Revenue
$ 121,750,000
77,700,000
Corporate Overhead Costs
$ 6,087,500
5,109,590
Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has
employed you as a financial consultant to help with some analysis. In addition to the information given, Mr. Andre provides you with the
following data on product costs for Bubbs:
IT
Month
Cases
Production Costs
222,000
$1,164,340
2
224,700
1,185,840
1,194,49:
1,210,035
1,212,339
1,233,185
1, 208,211
1, 251,286
1, 249,738
1, 261,837
3
222,400
4
243,000
250,450
252,000
227,750
254,700
246,300
5
7
9
10
260,150
11
257,700
1,266, 272
12
266,700
1, 296,963
Required:
a. Bunk Stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporate allocation (and
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