In attempting to achieve better results in the marketplace, management has been looking at changing the reward system for marketing, distribution and sales personnel. This would result in an increase in variable marketing and administrative costs by $2 per unit, and would reduce fixed marketing and distribution costs by $100,000: Calculate the number of units required to breakeven if management implemented the changes and Would you suggest that management pursue the changes? Explain By reference to the above data:How can a company effectively use CPV (Cost-Volume-Profit) analysis to make strategic decisions about its product pricing and production levels? In the dynamic landscape of manufacturing and sales, Caribann is a company with thepotential to produce 100,000 units of its sole product annually. Caribann's interplay of costsand production capacity prompts an analysis that will guide it in navigating the balancebetween revenue generation and cost management. As we examine Caribann's scenario,critical financial data emerges, laying the foundation for strategic decision-making.The following information is available:Selling price.Variable manufacturing costsFixed manufacturing costs--Fixed marketing and administrative costsVariable marketing and administrative costs--$42 per unit-$24 per unit--$360,000 annually-$240,000 annually-$4 per unit

In the dynamic landscape of manufacturing and sales, Caribann is a company with the potential to produce 100,000 units of its sole product annually. Caribann's interplay of costs and production capacity prompts an analysis that will guide it in navigating the balance between revenue generation and cost management. As we examine Caribann's scenario, critical financial data emerges, laying the foundation for strategic decision-making. The following information is available: Selling price. Variable manufacturing costs Fixed manufacturing costs-- Fixed marketing and administrative costs Variable marketing and administrative costs --$42 per unit -$24 per unit --$360,000 annually -$240,000 annually -$4 per unit

In the dynamic landscape of manufacturing and sales, Caribann is a company with the potential to produce 100,000 units of its sole product annually. Caribann's interplay of costs and production capacity prompts an analysis that will guide it in navigating the balance between revenue generation and cost management. As we examine Caribann's scenario, critical financial data emerges, laying the foundation for strategic decision-making. The following information is available: Selling price. Variable manufacturing costs Fixed manufacturing costs-- Fixed marketing and administrative costs Variable marketing and administrative costs --$42 per unit -$24 per unit --$360,000 annually -$240,000 annually -$4 per unit

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 18E

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Jolene Askew, manager of Feagan Company, has committed her company to a strategically sound cost reduction program. Emphasizing life-cycle cost management is a major part of this effort. Jolene is convinced that production costs can be reduced by paying more attention to the relationships between design and manufacturing. Design engineers need to know what causes manufacturing costs. She instructed her controller to develop a manufacturing cost formula for a newly proposed product. Marketing had already projected sales of 25,000 units for the new product. (The life cycle was estimated to be 18 months. The company expected to have 50 percent of the market and priced its product to achieve this goal.) The projected selling price was 20 per unit. The following cost formula was developed: Y=200,000+10X1 where X1=Machinehours(Theproductisexpectedtouseonemachinehourforeveryunitproduced.) Upon seeing the cost formula, Jolene quickly calculated the projected gross profit to be 50,000. This produced a gross profit of 2 per unit, well below the targeted gross profit of 4 per unit. Jolene then sent a memo to the Engineering Department, instructing them to search for a new design that would lower the costs of production by at least 50,000 so that the target profit could be met. Within two days, the Engineering Department proposed a new design that would reduce unit-variable cost from 10 per machine hour to 8 per machine hour (Design Z). The chief engineer, upon reviewing the design, questioned the validity of the controllers cost formula. He suggested a more careful assessment of the proposed designs effect on activities other than machining. Based on this suggestion, the following revised cost formula was developed. This cost formula reflected the cost relationships of the most recent design (Design Z). Y=140,000+8X1+5,000X2+2,000X3 where X1=MachinehoursX2=NumberofbatchesX3=Numberofengineeringchangeorders Based on scheduling and inventory considerations, the product would be produced in batches of 1,000; thus, 25 batches would be needed over the products life cycle. Furthermore, based on past experience, the product would likely generate about 20 engineering change orders. This new insight into the linkage of the product with its underlying activities led to a different design (Design W). This second design also lowered the unit-level cost by 2 per unit but decreased the number of design support requirements from 20 orders to 10 orders. Attention was also given to the setup activity, and the design engineer assigned to the product created a design that reduced setup time and lowered variable setup costs from 5,000 to 3,000 per setup. Furthermore, Design W also creates excess activity capacity for the setup activity, and resource spending for setup activity capacity can be decreased by 40,000, reducing the fixed cost component in the equation by this amount. Design W was recommended and accepted. As prototypes of the design were tested, an additional benefit emerged. Based on test results, the post-purchase costs dropped from an estimated 0.70 per unit sold to 0.40 per unit sold. Using this information, the Marketing Department revised the projected market share upward from 50 percent to 60 percent (with no price decrease). Required: 1. Calculate the expected gross profit per unit for Design Z using the controllers original cost formula. According to this outcome, does Design Z reach the targeted unit profit? Repeat, using the engineers revised cost formula. Explain why Design Z failed to meet the targeted profit. What does this say about the use of unit-based costing for life-cycle cost management? 2. Calculate the expected profit per unit using Design W. Comment on the value of activity information for life-cycle cost management. 3. The benefit of the post-purchase cost reduction of Design W was discovered in testing. What direct benefit did it create for Feagan Company (in dollars)? Reducing post-purchase costs was not a specific design objective. Should it have been? Are there any other design objectives that should have been considered?
Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its products from those of its competitors. Because of this strategy, you project that next year the firm will generate 6.0% revenue growth from price increases and 3.0% revenue growth from sales volume increases. Assume that the firms production cost structure involves strictly variable costs. (That is, the cost to produce each unit of product remains the same.) Should you project that the firms gross profit will increase next year? If you project that the gross profit will increase, is the increase a result of volume growth, price growth, or both? Should you project that the firms gross profit margin (gross profit divided by sales) will increase next year? If you project that the gross profit margin will increase, is the increase a result of volume growth, price growth, or both?
At the end of 20x1, Mejorar Company implemented a low-cost strategy to improve its competitive position. Its objective was to become the low-cost producer in its industry. A Balanced Scorecard was developed to guide the company toward this objective. To lower costs, Mejorar undertook a number of improvement activities such as JIT production, total quality management, and activity-based management. Now, after two years of operation, the president of Mejorar wants some assessment of the achievements. To help provide this assessment, the following information on one product has been gathered: Required: 1. Compute the following measures for 20x1 and 20x3: a. Actual velocity and cycle time b. Percentage of total revenue from new customers (assume one unit per customer) c. Percentage of very satisfied customers (assume each customer purchases one unit) d. Market share e. Percentage change in actual product cost (for 20x3 only) f. Percentage change in days of inventory (for 20x3 only) g. Defective units as a percentage of total units produced h. Total hours of training i. Suggestions per production worker j. Total revenue k. Number of new customers 2. For the measures listed in Requirement 1, list likely strategic objectives, classified according to the four Balance Scorecard perspectives. Assume there is one measure per objective.
In the dynamic landscape of manufacturing and sales, Caribann is a company with thepotential to produce 100,000 units of its sole product annually. Caribann's interplay of costsand production capacity prompts an analysis that will guide it in navigating the balancebetween revenue generation and cost management. As we examine Caribann's scenario,critical financial data emerges, laying the foundation for strategic decision-making.The following information is available:Selling price - -----------------------------------------------------$42 per unitVariable manufacturing costs -----------------------------------$24 per unitFixed manufacturing costs---------------------------------------$360,000 annuallyFixed marketing and administrative costs ---------------------$240,000 annuallyVariable marketing and administrative costs -----------------$4 per unit 3) In attempting to achieve better results in the marketplace, management has been looking at changing the reward system for marketing,…
In the dynamic landscape of manufacturing and sales, Caribann is a company with thepotential to produce 100,000 units of its sole product annually. Caribann's interplay of costsand production capacity prompts an analysis that will guide it in navigating the balancebetween revenue generation and cost management. As we examine Caribann's scenario,critical financial data emerges, laying the foundation for strategic decision-making. The following information is available:Selling price - -----------------------------------------------------$42 per unitVariable manufacturing costs -----------------------------------$24 per unitFixed manufacturing costs---------------------------------------$360,000 annuallyFixed marketing and administrative costs ---------------------$240,000 annuallyVariable marketing and administrative costs -----------------$4 per unit Required:1) Calculate breakeven point in units. 2) Compute the quantity of units which need to be sold to earn a target annual profit…
In the dynamic landscape of manufacturing and sales, Caribann is a company with thepotential to produce 100,000 units of its sole product annually. Caribann's interplay of costsand production capacity prompts an analysis that will guide it in navigating the balancebetween revenue generation and cost management. As we examine Caribann's scenario,critical financial data emerges, laying the foundation for strategic decision-making.The following information is available:Selling price - -----------------------------------------------------$42 per unitVariable manufacturing costs -----------------------------------$24 per unitFixed manufacturing costs---------------------------------------$360,000 annuallyFixed marketing and administrative costs ---------------------$240,000 annuallyVariable marketing and administrative costs -----------------$4 per unitRequired:1) Calculate breakeven point in units. 2) Compute the quantity of units which need to be sold to earn a target annual profit…
In the dynamic landscape of manufacturing and sales, Caribann is a company with the potential to produce 100,000 units of its sole product annually. Caribann's interplay of costs and production capacity prompts an analysis that will guide it in navigating the balance between revenue generation and cost management. As we examine Caribann's scenario, critical financial data emerges, laying the foundation for strategic decision-making. The following information is available:Selling price - -----------------------------------------------------$42 per unitVariable manufacturing costs -----------------------------------$24 per unitFixed manufacturing costs---------------------------------------$360,000 annuallyFixed marketing and administrative costs ---------------------$240,000 annuallyVariable marketing and administrative costs -----------------$4 per unit Required: 3) In attempting to achieve better results in the marketplace, management has been looking at changing the reward system for…
In the dynamic landscape of manufacturing and sales, Caribann is a company with the potential to produce 100,000 units of its sole product annually. Caribann's interplay of costs and production capacity prompts an analysis that will guide it in navigating the balance between revenue generation and cost management. As we examine Caribann's scenario, critical financial data emerges, laying the foundation for strategic decision-making. The following information is available: Selling price - $42 per unit Variable manufacturing costs - $24 Fixed manufacturing costs - $360,000 annually Fixed marketing and administrative costs - $240,000 annually Variable marketing and administrative costs - $4 per unit Questions: 1. Calculate the breakeven point in 2. Compute the number of units that need to be sold to earn a target annual profit of $120,000 3. In attempting to achieve better results in the marketplace,…
In the dynamic landscape of manufacturing and sales, Caribann is a company with the potential to produce 100,000 units of its sole product annually. Caribann's interplay of costs and production capacity prompts an analysis that will guide it in navigating the balance between revenue generation and cost management. There are critical financial data emerges, laying the foundation for strategic decision-making. The following information is available: Selling price - -----------------------------------------------------$42 per unit Variable manufacturing costs -----------------------------------$24 per unit Fixed manufacturing costs---------------------------------------$360,000 annually Fixed marketing and administrative costs ---------------------$240,000 annually Variable marketing and administrative costs -----------------$4 per unit In attempting to achieve better results in the marketplace, management has been looking at changing the reward system for marketing, distribution and…
Management has determined that in order to upgrade the competitor to Megatronics standards, an additional $375,000 of invested capital would be needed. a. Compute the current ROI of the Northeast Division and the division's ROI if the competitor is acquired. b. If divisional management is being evaluated on the basis of ROI, will the Northeast Division likely pursue acquisition of the competitor? c. Compute the ROI of the competitor as it is now and after the intended upgrade. d. If ROI is used as the basis for evaluation, would Megatronics Corporation likely be infavor of the acquisition of the competitor?e. Calculate the Northeast Division's ROI after acquisition of competitor but before upgrad-ing. f. Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested capital. Compute the current residual income of the Northeast Division and the division's residual income if the competitor is acquired.g. If divisional management…
Lucas is the X Division manager and his performance is evaluated by executive management based on Division ROI. The current controllable margin for X Division is P46,000. Its current operating assets total P210,000. The division is considering purchasing equipment for P40,000 that will increase sales by an estimated P20,000, with annual depreciation of P10,000. If the equipment is purchased, what is the new ROI (round-off the final answer to one decimal places)?
Get Hitched Inc. is a production company that is in the process of testing a strategic initiative aimed at increasing gross profit. The company’s current sales revenue is $1,800,000. Currently, the company’s gross profit is 35% of sales, but the company’s target gross profit percentage is 40%. The company’s current monthly cost of production is $1,170,000. Of this cost, 60% is for labor, 30% is for materials, and 10% is for overhead. The strategic initiative being tested at Get Hitched is a redesign of its production process that splits the process into two sequential procedures. The make up of the costs of production for Procedure 1 is currently 50% direct labor, 45% direct materials, and 5% overhead. The makeup of the costs of production for Procedure 2 is currently 50% direct labor, 20% direct materials, and 30% overhead. Company management estimates that Procedure 1 costs twice as much as Procedure 2. 1. Determine what the cost of labor, materials, and overhead for both Procedures…