John Marquez Pogi Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The market covers both new unit purchasers as well as replacement canopies. John developed its business plan based on the assumption that canopies would sell at a price of $400 each. The variable costs for each canopy were projected at $250, and the annual fixed costs were budgeted at $100,000. John's after-tax profit objective was $240,000; the company's effective tax rate is 60%. While John's sales usually rise during the second quarter, the May financial statements reported that sales were not meeting expectations. For the first 5 months of the year, only 350 units had been sold at the established price, with variable costs as planned, and it was clear that the after- tax profit projection would not be reached unless some actions were taken. John's president assigned a management committee to analyze the situation and develop an alternative course of action. The following was presented to the president. Reduce the sales price by $40. The sales organization forecasts that with the significantly reduced sales price, 2,700 units can be sold during the remainder of the year. Total fixed and variable unit costs will stay as budgeted. 1. Assuming no changes were made to the selling price or cost structure, how many units must John sell to break even? 2. Assuming no changes were made to the selling price or cost structure, how many units must John sell to achieve its after-tax profit objective?
John Marquez Pogi Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The market covers both new unit purchasers as well as replacement canopies. John developed its business plan based on the assumption that canopies would sell at a price of $400 each. The variable costs for each canopy were projected at $250, and the annual fixed costs were budgeted at $100,000. John's after-tax profit objective was $240,000; the company's effective tax rate is 60%. While John's sales usually rise during the second quarter, the May financial statements reported that sales were not meeting expectations. For the first 5 months of the year, only 350 units had been sold at the established price, with variable costs as planned, and it was clear that the after- tax profit projection would not be reached unless some actions were taken. John's president assigned a management committee to analyze the situation and develop an alternative course of action. The following was presented to the president. Reduce the sales price by $40. The sales organization forecasts that with the significantly reduced sales price, 2,700 units can be sold during the remainder of the year. Total fixed and variable unit costs will stay as budgeted. 1. Assuming no changes were made to the selling price or cost structure, how many units must John sell to break even? 2. Assuming no changes were made to the selling price or cost structure, how many units must John sell to achieve its after-tax profit objective?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Transcribed Image Text:John Marquez Pogi Company manufactures and sells adjustable canopies that attach to motor
homes and trailers. The market covers both new unit purchasers as well as replacement
canopies. John developed its business plan based on the assumption that canopies would sell at
a price of $400 each. The variable costs for each canopy were projected at $250, and the annual
fixed costs were budgeted at $100,000. John's after-tax profit objective was $240,000; the
company's effective tax rate is 60%.
While John's sales usually rise during the second quarter, the May financial statements reported
that sales were not meeting expectations. For the first 5 months of the year, only 350 units had
been sold at the established price, with variable costs as planned, and it was clear that the after-
tax profit projection would not be reached unless some actions were taken. John's president
assigned a management committee to analyze the situation and develop an alternative course of
action. The following was presented to the president.
Reduce the sales price by $40. The sales organization forecasts that with the significantly reduced
sales price, 2,700 units can be sold during the remainder of the year. Total fixed and variable unit
costs will stay as budgeted.
1. Assuming no changes were made to the selling price or cost structure, how many units must John sell to break even?
2. Assuming no changes were made to the selling price or cost structure, how many units must John sell to achieve its after-tax
profit objective?
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