Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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The company’s marketing team estimates that sales volume could be increased to 5,000 units per month if the sales price was lowered from $150 to $125 per unit. The production manager has confirmed that they have the capacity to increase production to this level. Assume that the cost pattern will not vary at the increased level of production. If management decreases the price, what would the impact on monthly sales, income and costs be? For each figure, indicate whether the change will result in an increase, decrease or no change in the sales, income and cost. Would you recommend the reduction in sales price? Why or Why not? (Show all supporting calculations).
(NOTE: ignore taxes or other costs not specifically mentioned in the questions.)
Baker Company has a product that sells for $20 per unit. The variable expenses are $12 per unit, and fixed expenses total $30,000 per year.
Compute for the following:c. If total sales increase by $20,000 and fixed expenses remain unchanged, by how much would net operating income be expected to increase?d. The marketing manager wants to increase advertising by $6,000 per year. How many additional units would have to be sold to increase overall net operating income by $2,000?
Brody Inc. is currently selling a product at P20 per piece. The income statement for the current month showed that Brody Inc. have sold 100,000 units, variable costs of P800,000 and fixed costs of P400,000. Management is thinking of reducing the current sales price by P2 and based on studies, this will increase unit sales by 20%. If you are the company’s management accountant, what will be the financial impact of this scenario that you will report to management?
a. no change in profit
b. an P80,000 drop in profitability.
c. a P240,000 drop in profitability.
d. a P400,000 drop in profitability.
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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?arrow_forwardRooney Company is considering adding a new product. The cost accountant has provided the following data: Expected variable cost of manufacturing $ 49 per unit Expected annual fixed manufacturing costs $ 68,000 The administrative vice president has provided the following estimates: Expected sales commission $ 3 per unit Expected annual fixed administrative costs $ 52,000 The manager has decided that any new product must at least break even in the first year. Required Use the equation method and consider each requirement separately. If the sales price is set at $67, how many units must Rooney sell to break even? Rooney estimates that sales will probably be 10,000 units. What sales price per unit will allow the company to break even? Rooney has decided to advertise the product heavily and has set the sales price at $72. If sales are 7,000 units, how much can the company spend on advertising and still break even?arrow_forwardDivine Electronics Ltd. manufactures a line of headphones. Sales are increasing, and management is concerned that the company may not have sufficient capacity to meet the expected demand for the coming year. The following data are available for planning purposes: Product Estimated Demand Next Year Selling Price Direct Materials Direct Labour 1 Wire 78,000 $25.00 $7.30 $5.00 2 Wire 75,000 20.00 10.20 3.20 3 Wire 115,000 17.50 2.80 5.00 The following additional information is available: 1. With the strong competition, the company feels that it can't increase its selling prices above those indicated 2. The direct labour rate is $10 per hour; this rate is expected to remain unchanged during the coming year. 3. Fixed manufacturing costs total $640,000 per year. Variable manufacturing overhead costs are equal to 25% of the direct labour costs. 4. The company's plant has a capacity of 110,000 direct labour-hours per…arrow_forward
- Salalah Inc. sells a plastic products to wholesalers. The company's budget for the upcoming year revealed anticipated unit sales of 38500, a selling price of OMR 47, variable cost per unit of OMR 11, and total fixed costs of OMR 390000.what is the safety margin in units for Bahwan Inc.?arrow_forwardOre Company produces bookcases. Sales were good in 2019. However, with the slowdown in the economy, the Chief Financial Officer is concerned about the sales for 2020. The income statement for 2020 is as follows: Sales revenue $600,000 Less: Variable costs $360,000 Contribution margin $240,000 Less: Fixed costs $140,000 Net profit $100,000 The company expects to sell 60,000 units in 2020. Compare different types of cost behaviours to do the following: (a) Use cost-volume-profit analysis to determine the breakeven point in units and in dollars. (b) Use cost-volume-profit analysis to determine the margin of safety in units and in dollars. (c) Assuming that cost behaviour pattern remains unchanged, compute the decrease in net income if sales revenue dropped by $200,000 in 2020.arrow_forwardTroy City Inc., manufactures a product and is considering raising the price by $20 a unit for the coming year. With a $20 price increase, demand is expected to fall by 2,500 units. Currently Projected Demand 21,000 units 18,500 units Selling Price $170 $190 Variable costs per unit $110 $110 Would you recommend the $20 price increase? A. Yes, because operating income increases. B. Yes, because inventory turnover increases. C. No, because demand decreased. D. No, because the contribution margin decreases.arrow_forward
- In the current year, Becker Sofa Company expected to sell 12,000 leather sofas. Fixed costs for the year were expected to be $8,400,000; unit sales price was budgeted at $4,600; and unit variable costs were expected to be $2,200.Becker Sofa Company's margin of safety (MOS) in sales dollars is:arrow_forwardagement buys enough of the company's shares of stock to take control of the poration. Why do changes in business process management affect management ?accounting Management accountants specialize in designing manufacturing cells to streamline production processes. They all affect the number of workers employed and management accountants are involved in human resources. Management accountants are experts in designing plant layout changes. O They all affect product costs and management accountants measure product costs. Changes in business process management has no effect on management accounting. O per unit. If the sales price of a unit is $12.00 and we produce and sell 8,000 units, the company's average cost per unit will be 4 A company has monthly fixed costs of $36.000. The variable costs are $2.50 $ 7.00 per unit. O S 2.50 per unit. O HEWLETT-PACKARDarrow_forwardThe Food division of Garcia Company reports the following for the current year. Sales Cost of goods sold Gross profit Expenses Income Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $660,000. Cost of goods sold will not change. Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $127,000. a. For each strategy, compute the profit margin expected for next year. b. Which strategy should Garcia choose based on expected profit margin? Complete this question by entering your answers in the tabs below. Required 1 $ 4,180,000 2,860,000 1,320,000 1,029,000 $ 291,000 Required Strategy 1 Strategy 2 For each strategy, compute the profit margin expected for next year. Note: Round your answers to one decimal place. Profit margin % %arrow_forward
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