Required information [The following information applies to the questions displayed below.] Warner Clothing is considering the introduction of a new baseball cap for sales by local vendors. The company has collected the following price and cost characteristics. Sales price Variable costs 15 per unit 3 per unit 42,000 per month 2$ Fixed costS Assume that the company plans to sell 5,000 units per month. Consider requirements (b), (c), and (d) independently of each other. Required: a. What will be the operating profit? b. What is the impact on operating profit if the sales price decreases by 10 percent? Increases by 20 percent? c. What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent?

Required information [The following information applies to the questions displayed below.] Warner Clothing is considering the introduction of a new baseball cap for sales by local vendors. The company has collected the following price and cost characteristics. Sales price Variable costs 15 per unit 3 per unit 42,000 per month 2$ Fixed costS Assume that the company plans to sell 5,000 units per month. Consider requirements (b), (c), and (d) independently of each other. Required: a. What will be the operating profit? b. What is the impact on operating profit if the sales price decreases by 10 percent? Increases by 20 percent? c. What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent?

Managerial Accounting

15th Edition

ISBN:9781337912020

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

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

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 18E: Target costing Toyota Motor Corporation (TM) uses target costing. Assume that Toyota marketing...

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Sales Needed to Earn Target Income Chillmax Company plans to sell 3,500 pairs of shoes at 60 each in the coming year. Variable cost is 35% of the sales price; contribution margin is 65% of the sales price. Total fixed cost equals 78,000 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the sales revenue that Chillmax must make to earn operating income of 81,900 by using the point in sales equation. 2. Check your answer by preparing a contribution margin income statement based on the sales dollars calculated in Requirement 1.
Deuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income statement for the year, before any special orders, is as follows: Fixed costs included in the forecasted income statement are $400,000 in manufacturing cost of goods sold and $200,000 in selling expenses. A new client placed a special order with Deuce, offering to buy 1,000 tennis rackets for $100.00 each. The company will incur no additional selling expenses if it accepts the special order. Assuming that Deuce has sufficient capacity to manufacture 1,000 more tennis rackets, by what amount would differential income increase (decrease) as a result of accepting the special order? (Hint: First compute the variable cost per unit relevant to this decision.)
Lean principles Bright Night, Inc., manufactures light bulbs. Its purchasing policy requires that the purchasing agents place each quarters purchasing requirements out for bid. This is because the Purchasing Department is evaluated solely by its ability to get the lowest purchase prices. The lowest bidder receives the order for the next quarter (90 working days). To make its bulb products, Bright Night requires 36,000 pounds of glass per quarter. Bright Night received two glass bids for the third quarter, as follows: Central Glass Company: 30.00 per pound of glass. Delivery schedule: 36,000 (400 lbs. x 90 days) pounds at the beginning of July to last for 3 months. Ithaca Glass Company: 30.20 per pound of glass. Delivery schedule: 400 pounds per working day (90 days in the quarter). Bright Night accepted Central Glass Companys bid because it was the low-cost bid. Instructions 1. Comment on Bright Nights purchasing policy. 2. What are the additional (hidden) costs, beyond price, of Central Glass Companys bid? Why werent these costs considered? 3. Considering only inventory financing costs, what is the additional cost per pound of Central Glass Companys bid if the annual cost of money is 8%? (Hint: Determine the average value of glass inventory held for the quarter and multiply by the quarterly interest charge, then divide by the number of pounds.)
Refer to Cornerstone Exercise 3.4 for data on Dohini Manufacturing Companys purchasing cost and number of purchase orders. The controller for Dohini Manufacturing ran regression on the data, and the coefficients shown by the regression program are: Required: 1. Construct the cost formula for the purchasing activity showing the fixed cost and the variable rate. 2. If Dohini Manufacturing Company estimates that next month will have 430 purchase orders, what is the total estimated purchasing cost for that month? (Round your answer to the nearest dollar.) 3. What if Dohini Manufacturing wants to estimate purchasing cost for the coming year and expects 5,340 purchase orders? What will estimated total purchasing cost be? (Round your answer to the nearest dollar.) What is the total fixed purchasing cost? Why doesnt it equal the fixed cost calculated in Requirement 1?
Labor classification trade-off Skidmore Electronics manufactures consumer electronic products. The company has three assembly labor classifications, S-1, S-2, and S-3. The three classifications are paid 15, 18, and 22 per hour, respectively. The assembly activity for a new smartphone is as follows: A product engineer proposes using a higher-rated employee to perform the assembly on the new phone. His analysis has shown that an S-3 employee can perform the assembly in 0.35 hour per unit. A. Determine the Assembly activity cost using the S-3 labor classification. B. Is the product engineers proposal supported?
Olivian Company wants to earn 420,000 in net (after-tax) income next year. Its product is priced at 275 per unit. Product costs include: Variable selling expense is 14 per unit; fixed selling and administrative expense totals 290,000. Olivian has a tax rate of 40 percent. Required: 1. Calculate the before-tax profit needed to achieve an after-tax target of 420,000. 2. Calculate the number of units that will yield operating income calculated in Requirement 1 above. (Round to the nearest unit.) 3. Prepare an income statement for Olivian Company for the coming year based on the number of units computed in Requirement 2. 4. What if Olivian had a 35 percent tax rate? Would the units sold to reach a 420,000 target net income be higher or lower than the units calculated in Requirement 3? Calculate the number of units needed at the new tax rate. (Round dollar amounts to the nearest dollar and unit amounts to the nearest unit.)