The Central Valley Company is a manufacturing firm that produces and sells a single product. The company’s revenues and expenses for the last four months are given below. Central Valley CompanyComparative Income Statement March April May June Sales in units 6,200 5,700 7,050 8,400 Sales revenue $ 762,600 $ 701,100 $ 867,150 $ 1,033,200 Less: Cost of goods sold 402,800 378,594 450,918 526,932 Gross margin $ 359,800 $ 322,506 $ 416,232 $ 506,268 Less: Operating Expenses Shipping expense $ 63,900 $ 53,600 $ 67,400 $ 65,000 Advertising expense 88,000 88,000 88,000 88,000 Salaries and commissions 164,400 137,000 167,500 171,500 Insurance expense 15,000 15,000 15,000 15,000 Amortization expense 48,000 48,000 48,000 48,000 Total operating expenses $ 379,300 $ 341,600 $ 385,900 $ 387,500 Net income $ (19,500 ) $ (19,094 ) $ 30,332 $ 118,768 Required: 1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.) 2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 79,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.) 3. Calculate the change in profit if the selling price were reduced by $10.5 each and annual sales were to increase by 7,400 units. 4. Determine the change in profit if the company were to increase advertising by $112,000 and if this were to increase sales by 7,400 units.

The Central Valley Company is a manufacturing firm that produces and sells a single product. The company’s revenues and expenses for the last four months are given below. Central Valley CompanyComparative Income Statement March April May June Sales in units 6,200 5,700 7,050 8,400 Sales revenue $ 762,600 $ 701,100 $ 867,150 $ 1,033,200 Less: Cost of goods sold 402,800 378,594 450,918 526,932 Gross margin $ 359,800 $ 322,506 $ 416,232 $ 506,268 Less: Operating Expenses Shipping expense $ 63,900 $ 53,600 $ 67,400 $ 65,000 Advertising expense 88,000 88,000 88,000 88,000 Salaries and commissions 164,400 137,000 167,500 171,500 Insurance expense 15,000 15,000 15,000 15,000 Amortization expense 48,000 48,000 48,000 48,000 Total operating expenses $ 379,300 $ 341,600 $ 385,900 $ 387,500 Net income $ (19,500 ) $ (19,094 ) $ 30,332 $ 118,768 Required: 1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.) 2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 79,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.) 3. Calculate the change in profit if the selling price were reduced by $10.5 each and annual sales were to increase by 7,400 units. 4. Determine the change in profit if the company were to increase advertising by $112,000 and if this were to increase sales by 7,400 units.

Managerial Accounting

15th Edition

ISBN:9781337912020

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

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

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 3E: Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began...

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The Central Valley Company is a manufacturing firm that produces and sells a single product. The company’s revenues and expenses for the last four months are given below.

Central Valley Company Comparative Income Statement
	March	April		May			June
Sales in units		6,200			5,700			7,050		8,400
Sales revenue	$	762,600		$	701,100		$	867,150	$	1,033,200
Less: Cost of goods sold		402,800			378,594			450,918		526,932

Gross margin	$	359,800		$	322,506		$	416,232	$	506,268
Less: Operating Expenses
Shipping expense	$	63,900		$	53,600		$	67,400	$	65,000
Advertising expense		88,000			88,000			88,000		88,000
Salaries and commissions		164,400			137,000			167,500		171,500
Insurance expense		15,000			15,000			15,000		15,000
Amortization expense		48,000			48,000			48,000		48,000

Total operating expenses	$	379,300		$	341,600		$	385,900	$	387,500

Net income	$	(19,500	)	$	(19,094	)	$	30,332	$	118,768

Required:

1.	Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.)

2.	Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 79,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.)

3.	Calculate the change in profit if the selling price were reduced by $10.5 each and annual sales were to increase by 7,400 units.

4.	Determine the change in profit if the company were to increase advertising by $112,000 and if this were to increase sales by 7,400 units.

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