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The following are estimates relating to the 2020 budget of Thermo Blast that produces specialized ornaments for the Caribbean: Selling Price--- Variable cost per Ornament- Fixed annual cost--- Nett Profit (After tax)-- Income tax rate-- -$1500 -$700 -$120000 -$800000 --25% The mid-year review of the income statement revealed that sales were not at the expected level. For the six months of the year to June 2020, 320 units were sold at the estimated selling price with variable cost as planned. However, the net profit projection for 2020 would not be achieved unless management decisions are made. The following mutually exclusive alternatives were presented to management: a) The selling price should be reduced by $150. This reduction in selling price will allow 1500 units to be sold for the balance of the year. The budgeted fixed cost and variable cost per unit will remain unchanged. b) The variable cost per unit will be reduced by $50 by sourcing less expensive direct material. Also, the selling price will be reduced by $200 and the expected sales for the balance of the year is 1300 units. c) The fixed cost would be reduced by$20000 and the selling price by 5%. Variable cost will remain unchanged and 1200 units are expected to be sold for the balance of the year.

The following are estimates relating to the 2020 budget of Thermo Blast that produces specialized ornaments for the Caribbean: Selling Price--- Variable cost per Ornament- Fixed annual cost--- Nett Profit (After tax)-- Income tax rate-- -$1500 -$700 -$120000 -$800000 --25% The mid-year review of the income statement revealed that sales were not at the expected level. For the six months of the year to June 2020, 320 units were sold at the estimated selling price with variable cost as planned. However, the net profit projection for 2020 would not be achieved unless management decisions are made. The following mutually exclusive alternatives were presented to management: a) The selling price should be reduced by $150. This reduction in selling price will allow 1500 units to be sold for the balance of the year. The budgeted fixed cost and variable cost per unit will remain unchanged. b) The variable cost per unit will be reduced by $50 by sourcing less expensive direct material. Also, the selling price will be reduced by $200 and the expected sales for the balance of the year is 1300 units. c) The fixed cost would be reduced by$20000 and the selling price by 5%. Variable cost will remain unchanged and 1200 units are expected to be sold for the balance of the year.

Cornerstones of Cost Management (Cornerstones Series)
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 18E: Carmichael Corporation is in the process of preparing next years budget. The pro forma income...
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3) By reference to the above data, explain: a. Variable costs in the context of cost-volume-profit (CPV) analysis? b. Fixed costs in the context of CPV analysis? ks) c. Contribution margin in the context of CPV analysis? (N)
Transcribed Image Text:3) By reference to the above data, explain: a. Variable costs in the context of cost-volume-profit (CPV) analysis? b. Fixed costs in the context of CPV analysis? ks) c. Contribution margin in the context of CPV analysis? (N)
The following are estimates relating to the 2020 budget of Thermo Blast that produces specialized ornaments for the Caribbean: Selling Price Variable cost per Ornament-- Fixed annual cost-- Nett Profit (After tax)-- Income tax rate-- -$1500 -$700 -$120000 -$800000 --25% The mid-year review of the income statement revealed that sales were not at the expected level. For the six months of the year to June 2020, 320 units were sold at the estimated selling price with variable cost as planned. However, the net profit projection for 2020 would not be achieved unless management decisions are made. The following mutually exclusive alternatives were presented to management: a) The selling price should be reduced by $150. This reduction in selling price will allow 1500 units to be sold for the balance of the year. The budgeted fixed cost and variable cost per unit will remain unchanged. b) The variable cost per unit will be reduced by $50 by sourcing less expensive direct material. Also, the selling price will be reduced by $200 and the expected sales for the balance of the year is 1300 units. c) The fixed cost would be reduced by$20000 and the selling price by 5%. Variable cost will remain unchanged and 1200 units are expected to be sold for the balance of the year.
Transcribed Image Text:The following are estimates relating to the 2020 budget of Thermo Blast that produces specialized ornaments for the Caribbean: Selling Price Variable cost per Ornament-- Fixed annual cost-- Nett Profit (After tax)-- Income tax rate-- -$1500 -$700 -$120000 -$800000 --25% The mid-year review of the income statement revealed that sales were not at the expected level. For the six months of the year to June 2020, 320 units were sold at the estimated selling price with variable cost as planned. However, the net profit projection for 2020 would not be achieved unless management decisions are made. The following mutually exclusive alternatives were presented to management: a) The selling price should be reduced by $150. This reduction in selling price will allow 1500 units to be sold for the balance of the year. The budgeted fixed cost and variable cost per unit will remain unchanged. b) The variable cost per unit will be reduced by $50 by sourcing less expensive direct material. Also, the selling price will be reduced by $200 and the expected sales for the balance of the year is 1300 units. c) The fixed cost would be reduced by$20000 and the selling price by 5%. Variable cost will remain unchanged and 1200 units are expected to be sold for the balance of the year.
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