Valencia Manufacturing Company manufactures and sells musical gadgets. The business earned
Operating Income of $220,000 in 2018, when selling price per unit was $200, and the president of Valencia
is under pressure to increase operating income in 2019. Data for variable cost per unit and total fixed costs
were as follows:
Variable expenses per unit: Direct Material $40
Direct Labour $32
Variable Manufacturing Overhead $18
Fixed expenses: Fixed Manufacturing Overhead $190,000
Fixed Selling Costs $115,000
Fixed Administrative Costs $135,000
(f) Assume that as a result of reorganizing the production process, Valencia Manufacturing Company
was able to reduce direct material cost per unit by $5 due to a change in the quality of raw material
used in the production process but the expected sales of 6,000 units would decrease by 5% and
total fixed costs are expected to increase by $94,000. What must the new selling price per unit be if
the company wishes to meet the target operating profit for 2019?
(g) You have just begun your summer internship at Valencia Manufacturing. To expand sales, the
business is considering paying a commission to its sales team. You have been asked to compute 1)
the new break-even sales figure, and 2) the operating profit if sales increase by 10% under the new
sales commission plan. She is confident that you can handle the task, because you learned CVP
analysis in your accounting class.
You collected your data, performed your analysis and submitted a memo to your manager, who was
very pleased with the work done. Your report indicated that the new sales commission plan would
result in a significant increase in operating income but only a small increase in break-even sales.
A few days after, you realized that you made an error in the CVP analysis, as the sales personnel’s
$88,000 monthly salaries were inadvertently left out and you therefore did not include this fixed
marketing cost in your computations. You are not sure what to do, as you are afraid that Valencia
might not offer you permanent employment after the internship.
How would your error affect breakeven sales and operating income under the proposed sales
commission plan? After considering all factors, should you inform your manager or simply keep
Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*
Q: Accounting Question
A: A deferred tax asset is an item on the balance sheet that results from an overpayment or advance pay...
Q: Sell or Process Further. Can you help with A?
A: a) Differential analysis Sell Rough cut (Alt 1) or Process further into finished cut (Alt....
Q: What is a standard cost system?
A: Meaning of Standard costing system :- According to H. J. Weldon “Standard costs are pre-determined o...
Q: Using variable costing, service company Divine Pool Cleaning Service provides pool cleaning services...
A: Click to see the answer
Q: he financial year for Drip Dry Cleaning Services ends on 30 June. Using the following information,ma...
A: The Adjusting entries need to be passed at the end of the financial year so that the books are adjus...
Q: Gordon Grimes, a self-employed consultant near Atlanta, received an invitation to visit a prospectiv...
A: Grimes can allocate cost on 3 basis: a. Standalone cost method b. Incremental cost allocation metho...
Q: Preparing a financial budget—schedule of cash receipts and schedule of cash payments Agua Cool is a ...
A: Cash Budget A cash budget is a budget prepared by the company which shows the net cash of the compan...
Q: How is a credit check in the advanced technology system fundamentally different from a credit checki...
A: Credit Check: A credit check is defined as the process of examining the financial behavior of a cust...
Q: List the four budgeting objectives.
A: Definition: Budgeting: It is the process where the planning is done for spending less than the ear...