Several years ago. cosmetics manufacturer Elizabeth Arden announced its decision to cancel the launch - including a $12 million advertising campaign to announce the product plus $1.7 million in distribution costs- of Elizabeth Taylor's Black Pearls perfume despite having already spent $15 million on development, marketing, and inventory. Arden should have gone ahead with the planned launch if the anticipated revenue from sales of existing inventory exceeded at least O $13.7 million O $12 million O s15 million O $1.7 million O s28.7 million

Several years ago. cosmetics manufacturer Elizabeth Arden announced its decision to cancel the launch - including a $12 million advertising campaign to announce the product plus $1.7 million in distribution costs- of Elizabeth Taylor's Black Pearls perfume despite having already spent $15 million on development, marketing, and inventory. Arden should have gone ahead with the planned launch if the anticipated revenue from sales of existing inventory exceeded at least O $13.7 million O $12 million O s15 million O $1.7 million O s28.7 million

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

The Heinrich Tire Company recalled a tire in its subcompact line in December 2021. Costs associated with the recall were originally thought to approximate $45 million. Now, though, while management feels it is probable the company will incur substantial costs, all discussions indicate that $45 million is an excessive amount. Based on prior recalls in the industry, management has provided the following probability distribution for the potential loss: (FV of $1. PV of $1. EVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Loss Amount $35 million $25 million $15 million Probability 20% 50% 30% An arrangement with a consortium of distributors requires that all recall costs be settled at the end of 2022. The risk- free rate of interest is 4%. Required: 1. & 2. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of 2021 for the loss and contingent liability? For the remainder of this…
The Heinrich Tire Company recalled a tire in its subcompact line in December 2018. Costs associated with therecall were originally thought to approximate $50 million. Now, though, while management feels it is probable thecompany will incur substantial costs, all discussions indicate that $50 million is an excessive amount. Based onprior recalls in the industry, management has provided the following probability distribution for the potential loss:Loss Amount Probability$40 million 20%$30 million 50%$20 million 30%An arrangement with a consortium of distributors requires that all recall costs be settled at the end of 2019. Therisk-free rate of interest is 5%.Required:1. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the endof 2018 for the loss and contingent liability?2. For the remainder of this problem, apply the expected cash flow approach of SFAC No. 7. Estimate Heinrich’sliability at the end of the 2018 fiscal year.3. Prepare the…
The management of Woznick Corporation has been concerned for some time with the financial performance of its product V860 and has considered discontinuing it on several occasions. Data from the company's accounting system for this product for last year appear below: Sales Variable expenses Fixed manufacturing expenses Fixed selling and administrative expenses In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $30,000 of the fixed manufacturing expenses and $13,000 of the fixed selling and administrative expenses are avoidable if product V860 is discontinued. What would be the financial advantage (disadvantage) from dropping product V860? Multiple Choice ($35,000) ($5,000) $35,000 $5,000 $ 150,000 $ 72,000 $50,000 $ 33,000 FFF Next
The Draper Company is considering dropping its Dream bug toy due to continuing losses. Revenue and cost data on the toy for the past year follow: Sales of 15,000 units P 150,000 Variable expenses 120,000 Contribution margin 30,000 Fixed expenses 40,000 Net operating loss (P 10,000) If the toy were discontinued, then Draper could avoid P8,000 per year in fixed costs. 1. Suppose again that if the Doombug toy is dropped, the production and sale of other Draper toys would increase so as to generate a P16,000 increase in the contribution margin received from these other toys. At what selling price per Doombug should Draper be indifferent (on economic grounds) between dropping the Doombug or continuing its production and sale? (All other conditions remain the same, including annual sales of 15,000 units of the Doombug toy.) A) P 8.33 B) P 9.25 C) P 9.60 D) P 10.70
The Draper Company is considering dropping its Dream bug toy due to continuing losses. Revenue and cost data on the toy for the past year follow: Sales of 15,000 units P 150,000 Variable expenses 120,000 Contribution margin 30,000 Fixed expenses 40,000 Net operating loss (P 10,000) If the toy were discontinued, then Draper could avoid P8,000 per year in fixed costs. 1. Under the given conditions, the change in annual operating income from discontinuing the production and sale of Doombugs would be: 2. Assuming all other conditions stay the same, at what level of annual sales of Doombugs (in units) should Draper be indifferent to discontinuing Doombugs or continuing the production and sale of Doombugs? 3. Suppose that if the Doombug toy is dropped, the production and sale of other Draper toys would increase so as to generate a P16,000 increase in the contribution margin received from these…
The Heinrich Tire Company recalled a tire in its subcompact line in December 2021. Costs associated with the recall were originally thought to approximate $39 million. Now, though, while management feels it is probable the company will incur substantial costs, all discussions indicate that $39 million is an excessive amount. Based on prior recalls in the industry, management has provided the following probability distribution for the potential loss: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Loss Amount Probability $29 million 20% $19 million 50% $9 million 30% An arrangement with a consortium of distributors requires that all recall costs be settled at the end of 2022. The risk-free rate of interest is 6%. Required:1. & 2. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of 2021 for the loss and contingent liability? For the…
The Draper Company is considering dropping its Dream bug toy due to continuing losses. Revenue and cost data on the toy for the past year follow: Sales of 15,000 units P 150,000 Variable expenses 120,000 Contribution margin 30,000 Fixed expenses 40,000 Net operating loss (P 10,000) If the toy were discontinued, then Draper could avoid P8,000 per year in fixed costs. 1. Under the given conditions, the change in annual operating income from discontinuing the production and sale of Doombugs would be: A) P 30,000 decrease B) P 10,000 increase C) P 22,000 decrease D) P 18,000 increase 2. Assuming all other conditions stay the same, at what level of annual sales of Doombugs (in units) should Draper be indifferent to discontinuing Doombugs or continuing the production and sale of Doombugs? A) 20,000 B) 18,000 C) 6,000 D) 4,000…
One Manila Inc.'s president, Zane Cruz, is concerned about the prospects of one of the firm's major products. The president has been reviewing a marketing report with Jom Lara, marketing product manager, for their top-of-the-line stereo amplifier. The report indicates another price reduction is needed to meet anticipated competitors' reduction in sales prices. The current selling price for OMI's amplifier is P35,000 per unit. It is expected that within three months OMI's two major competitors will be selling their comparable amplifiers for P30,000 per unit. This concerns CRUZ because OMI's current cost of producing the amplifiers is P31,500, which yields a P3,500 profit on each unit sold. The situation is especially disturbing because OMI had implemented an activity-based costing (ABC) system about two years ago. The ABC system helped them better identify costs, cost pools, cost drivers, and cost reduction opportunities. Changes made when adopting ABC reduced costs on this…
The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow: Sales of 15,000 units $ 150,000 Variable expenses 120,000 Contribution margin 30,000 Fixed expenses 40,000 Net operating loss $ (10,000 ) If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of the fixed costs are not avoidable. Suppose that if the Doombug toy is dropped, the production and sale of other Draper toys would increase so as to generate a $16,000 increase in the contribution margin received from these other toys. If all other conditions are the same, the financial advantage (disadvantage) from discontinuing the production and sale of Doombugs would be: $28,000 ($6,000) ($2,000) $14,000
Harrison Jones is a marketer of facial care products. It plans on introducing a new product line next year and is not quite certain whether its sales team can accomplish the sales objectives. It must determine how much dollar business it must do to at least break even. Its historical average annual sales has been $10,000,000 and its cost of sales has been $4,500,000. Its planned investment in the new business is $450,000. How much dollar business must Harrison Jones do in order to recoup its planned investment?
A study has been conducted to determine if Product A should be dropped. Sales of the product total $500,000; variable expenses total $340,000. Fixed expenses charged to the product total $210,000. The company estimates that $60,000 of these fixed expenses are not avoidable even if the product is dropped. If Product A is dropped, the annual financial advantage (disadvantage) for the company of eliminating this product should be: Multiple Choice ($10,000) $10,000 ($50,000) $50,000 Next
[The following information applies to the questions displayed below.] Astro Co. sold 19,200 units of its only product and incurred a $43,072 loss (ignoring taxes) for the current year, as shown here. During a planning session for year 2020's activities, the production manager notes that variable costs can be reduced 50% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $142,000. The maximum output capacity of the company is 40,000 units per year. ASTRO COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 $704,640 563,712 Sales Variable costs Contribution margin Fixed costs 140,928 184,000 Net loss $(43,072) Compute the sales level required in both dollars and units to earn $120,000 of target pretax income in 2020 with the machine stalled and no change in unit sales price. (Do not round intermediate calculations. Round your answers to 2 decimal places. pund "Contribution margin…