no handwriting pleaseFrench Manufacturing Company produces and sells a line of products that are sold usually all year round. TheThe company has a maximum production capacity of 100,000 units per year. Operating at normal capacity, theThe business earned an Operating Income of $600,000 in 2020. The following cost data has been prepared for theThe year ended December 31, 2020.Selling price per unit……………………………………… $50.00Production Costs:Direct Materials …………………………………. $10.00Direct Labor ……………………………………. $8.00Variable Manufacturing Overhead ……………. $7.00Fixed Manufacturing Overhead…………....................... $450,000Fixed Selling & Administrative Expenses……………… $300,000Variable selling expense per unit ………………………. $10.00Required:a) Using the equation method, calculate the normal capacity of the business.b) French’s management team is concerned about the selling expenses associated with the product and wants to reduce the variable selling expense per unit by 30%, which will see a simultaneous reduction in the total fixed selling expenses by $30,000. If they are able to accomplish this feat, it is expected that sales volume for the year will fall by 16⅔% below normal capacity. What must the new selling price per unit be if the company wishes to meet the shareholders’ profit objective for 2021? How will these changes impact the percentage margin of safety?c) What are the advantages and disadvantages of the scattergram method as compared to the high-low method?

Given: Maximum production capacity -100,000 units per year. Operating Income - $600,000 in 2020…

Answered: no handwriting please French…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 6CE

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no handwriting please

French Manufacturing Company produces and sells a line of products that are sold usually all year round. The

The company has a maximum production capacity of 100,000 units per year. Operating at normal capacity, the

The business earned an Operating Income of $600,000 in 2020. The following cost data has been prepared for the

The year ended December 31, 2020.

Selling price per unit……………………………………… $50.00

Production Costs:

Direct Materials …………………………………. $10.00

Direct Labor ……………………………………. $8.00

Variable Manufacturing Overhead ……………. $7.00

Fixed Manufacturing Overhead…………....................... $450,000

Fixed Selling & Administrative Expenses……………… $300,000

Variable selling expense per unit ………………………. $10.00

Required:

a) Using the equation method, calculate the normal capacity of the business.
b) French’s management team is concerned about the selling expenses associated with the product and wants to reduce the variable selling expense per unit by 30%, which will see a simultaneous reduction in the total fixed selling expenses by $30,000. If they are able to accomplish this feat, it is expected that sales volume for the year will fall by 16⅔% below normal capacity. What must the new selling price per unit be if the company wishes to meet the shareholders’ profit objective for 2021? How will these changes impact the percentage margin of safety?
c) What are the advantages and disadvantages of the scattergram method as compared to the high-low method?

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