Valencia Manufacturing Company manufactures and sells musical gadgets. The business earned Operating Income of $220,000 in 2018, when selling price per unit was $200, and the president of Valencia is under pressure to increase operating income in 2019. Data for variable cost per unit and total fixed costs were as follows: Variable expenses per unit:                Direct Material $40                                                             Direct Labour $32                                                             Variable Manufacturing Overhead $18 Fixed expenses:                      Fixed Manufacturing Overhead $190,000                                                 Fixed Selling Costs $115,000                                                 Fixed Administrative Costs $135,000   Required: (a)          Calculate the margin of safety in units and in sales dollars.                         (b)          The management of Valencia Manufacturing Company is desirous of increasing operating income by 20% in 2019. They expect per unit data and total fixed costs to remain the same in 2018. Determine the number of units that must be sold to earn this target operating profit. Is this a realistic goal?

Question

Valencia Manufacturing Company manufactures and sells musical gadgets. The business earned Operating Income of $220,000 in 2018, when selling price per unit was $200, and the president of Valencia is under pressure to increase operating income in 2019. Data for variable cost per unit and total fixed costs were as follows:

Variable expenses per unit:                Direct Material

$40

                                                            Direct Labour

$32

                                                            Variable Manufacturing Overhead

$18

Fixed expenses:                      Fixed Manufacturing Overhead

$190,000

                                                Fixed Selling Costs

$115,000

                                                Fixed Administrative Costs

$135,000

 

Required:

(a)          Calculate the margin of safety in units and in sales dollars.                        

(b)          The management of Valencia Manufacturing Company is desirous of increasing operating income by 20% in 2019. They expect per unit data and total fixed costs to remain the same in 2018. Determine the number of units that must be sold to earn this target operating profit. Is this a realistic goal?                                                                                                           

(c)           Assume that as a result of reorganizing the production process, Valencia Manufacturing Company was able to reduce direct material cost per unit by $5 due to a change in the quality of raw material used in the production process but the expected sales of 6,000 units would decrease by 5% and total fixed costs are expected to increase by $94,000. What must the new selling price per unit be if the company wishes to meet the target operating profit for 2019?

Expert Answer

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.
Tagged in
Business
Accounting

Other

Financial Accounting

Related Accounting Q&A

Find answers to questions asked by students like you.

Q: A Preparing a financial budget—schedule of cash receipts, schedule of cash payments, cash budget Puc...

A: Click to see the answer

Q: Preparing the financial budget——cash budget Hoppy Company requires a minimum cash balance of $3,500....

A:  

Q: b) Newcastle Ltd manufactures and sells T-shirts imprinted with college names and slogans. Last Year...

A: Contribution margin = selling price - variable cost Net operating profit   = Contribution margin - f...

Q: buestion 0 The folowing information was disdosed during the audit of Kingbird Inc. Amount Due per Ta...

A: a) Calculate the taxable income (income before income taxes) for the year 2021 as follows: The taxa...

Q: Valencia Manufacturing Company manufactures and sells musical gadgets. The business earned Operating...

A: Target profit is a profit that the company wishes to obtain by changing certain variables like sales...

Q: Setting sales prices The Sweet Treats Company manufactures candy that is sold to food distributors. ...

A: Setting sales price in long run: While setting sales price in long run, absorption costing is the a...

Q: Preparing an operating budget—direct materials budget Bell expects to produce 1,800 units in January...

A: Desired ending inventory for January = Total material required for production (pound) for February x...

Q: Explain the revenue recognition process when a performance obligation is satisfied over time accordi...

A: Under the IFRS 15- Revenue from Contracts with Customers, a framework is set for revenue recognition...

Q: Valencia Manufacturing Company manufactures and sells musical gadgets. The business earned Operating...

A: We are authorized to answer three sub parts at a time, since you have not mentioned which part you a...

Q: Choose the correct.Cost of capital is helpful in corporative analysis of various:  A. Source of ...

A: Answer:   Option A.

Q: The trial balance columns of the worksheet for MOON TRAVEL AGENCY are as follows. MOON TRAVEL AGENC...

A: Trial balance is a statement of accounts and its balances. It is the first step for preparing the fi...

Q: 5. A business operated at 100% capacity during its first month of operations, with the following res...

A: Variable costing income statement refers to all the variable costs which are subtracted from income ...

Q: Why depreciation on fixed assets is not recorded in receipts and Payment Account?

A: Click to see the answer

Q: The worksheet of the MAHA Company as follows. MAHA COMPANY Worksheet (partial) for the year ended D...

A: Closing Entries are passed at the end of the period by summarizing all income and expenses to the In...

Q: Kenzie Company purchased a 3-D printer for $345,000. Although this printer is expected to last for t...

A: Depreciation rate = (100% / 3 years)*2                              = 66.67%

Q: Stock Investment Transactions On September 12, 2,400 shares of Aspen Company are acquired at a price...

A:   Date Accounts title $ Explanation Debit $ Credit $ 12 Sep Investment in Aspen comp...

Q: Tea Tree Bay Ltd acquires a Gizmo Machine from Jetsons Ltd for the following consideration:Cash $20,...

A: Given information is: Tea Tree Bay Ltd acquires a Gizmo Machine from Jetsons Ltd for the following c...

Q: Number 19. Please thank you

A: Given information is: Level of output = 10,000 units Fixed overhead = $12, 000 Variable Overhead = $...

Q: Thank you

A: Workings: Calculation of variable cost per unit: Total baskets produced = 2000 direct materials cost...

Q: Assuming that these activity levels are within the relevant range, the maj was:

A: Manufacturing overhead:   Manufacturing overhead refers to indirect costs that are incurred in the f...

Q: Having issue with this problem. Thank you

A: Number of Outstanding stock = Number of Stocks Issued - Treasury Stock    Treasury stock is the stoc...

Q: Preparing a financial budget—schedule of cash receipts sensitivity analysis Marcel Company projects ...

A: 1.  

Q: What is the formula used to determine the number of units to be produced?

A: Number of units to be produced is calculated by Desired ending Inventory is to be added to the Plann...

Q: Perdue Company purchased equipment on April 1 for $100,170. The equipment was expected to have a use...

A: A) Straight line method Cost of equipment = $100170 Residual value = $2970 Useful life = 3 years Ann...

Q: Accounting Question

A: To calculate the cost of preparing a wage and salary tax return and a business tax return using ABC:...

Q: The following is a partial balance sheet for Anderson Corp. for the year ended December 31, 2002: 9 ...

A: Given information is: Following is a partial balance sheet for Anderson Corp. for the year ended Dec...

Q: he financial year for Drip Dry Cleaning Services ends on 30 June. Using the following information,ma...

A: The Adjusting entries need to be passed at the end of the financial year so that the books are adjus...

Q: The financial year for Drip Dry Cleaning Services ends on 30 June. Using the following information,m...

A: 1. Interest Expense = 15th February to 30th June = 4.5months. = 16000 x 8% x (4.5/12) = $480   2.  1...

Q: What is a master budget?

A:  

Q: If Intervale Railway’s fixed costs total $90,000 per month, the variable cost per passenger is $45, ...

A: Contribution margin per unit  = Sales price price unit - Variable cost per unit Contribution margin ...

Q: Classique Household Furnishings & Appliances is a family-owned furniture store. You are the mana...

A: As you posted multiple sub parts in questions we are answering only first 3 sub parts only. Kindly r...

Q: I started this question, but I got stuck. Can someone help me?

A:   October November December Total Sales $110,000 $138,000 $201,000 Cash sales (25%) $27,500 $34,...

Q: Computing product costs in an ABC system The Alright Manufacturing Company in Rochester, Minnesota, ...

A: Requirement 1:   Compute the missing figures for the ABC cost.

Q: Can I gt help for part iv, v, vi tank u

A: Cash Budget A cash budget is a budget prepared by the company which shows the net cash of the compan...

Q: Hassan Company reports the following for the month of June.     Units Unit cost Total C...

A: Definition:   Perpetual inventory system: The method or system of maintaining, recording, and adjust...

Q: Computing contribution margin in total, per unit, and as a ratio Complete the table below for the mi...

A: Variable cost per unit = Sales price per unit - Contribution margin per unit  = 250 - 125 = $125 Tot...

Q: Calculating contribution margin Glenn Company sells a product for $80 per unit. Variable costs are 5...

A:  

Q: Explain why the debit and credit total of a trial balance should always be equal? What are the situa...

A: In a trial balance, all debits total should always be equal to all credits total. Because as per dou...

Q: Suppose Iron City manufactures cast iron skillets. One model is a 10-inch skillet that sells for $20...

A: Cost of goods sold per skillet = Direct material + Direct Labor + Manufacturing overhead = $9 + $1 +...

Q: From the following information calculate total purchases.Creditors April 01, 2016....... 30,000Credi...

A: Click to see the answer

Q: Name five common major classes of operating cash receipts or operating cash payments presented on th...

A: Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalen...

Q: Product and Period Cost Flows The Devon Motor Company produces automobiles. On April 1st the company...

A: Given information is: The Devon Motor Company produces automobiles. On April 1st the company had no ...