a.
Compute the volume in units and the dollar sales level necessary to maintain the present profit level of Company S; assuming that the maximum price increase is implemented.
a.
Answer to Problem 49P
The target volume is 78,413 and target dollar sales are $5,175,258 at the current level of profit.
Explanation of Solution
Target volume: the level of sales which need to be achieved during a particular period of time is termed as target volume.
Target profit: the amount of profit which needs to be achieved during a particular period of time on a particular level of sales is termed as target profit.
Compute the volume in units and the dollar sales level necessary to maintain the present profit level of Company S; assuming that the maximum price increase is implemented:
Compute the target volume at the current level of profit:
Thus, the target volume is 78,413 and target dollar sales are $5,175,258 at the current level of profit.
Working note 1:
Compute the current level of profit:
Working note 2:
Compute the revised variable cost:
Sales price is expected to increase by not more than 10%.
Working note 3:
Compute the revised fixed cost:
Fixed cost is expected to increase by 5%.
Compute the revised variable cost:
Total variable cost is $30.
Distribution of variable cost:
Expense | Ratio | Amount |
Labor costs | 50% | 15 |
Material costs | 25% | 7.5 |
Variable overhead costs | 25% | 7.5 |
Total variable cost | 30 |
Table: (1)
Variable cost overhead is not given in the question so it is assumed that it is calculated by subtracting the labor costs (50%) and material costs (25%) from the total variable cost (100%).
Working note 4:
Compute the revised variable cost:
Variable cost is raised by the following percentage:
Expense | Amount | Change % | Revised amount |
Labor costs | 15 | 15% | 17.25 |
Material costs | 7.5 | 10% | 8.25 |
Variable overhead costs | 7.5 | 20% | 9 |
Total revised variable cost | 34.5 |
Table: (2)
Working note 5:
Compute the contribution margin:
Particulars | Amount |
Sales (unit) (2) | $66 |
Less: Variable cost (unit) (4) | $34.5 |
Contribution | $31.5 |
Table: (3)
b.
Compute the volume of sales and the dollar sales level necessary to provide the 6 per cent increase in profits of Company S; assuming that the maximum price increase is implemented.
b.
Answer to Problem 49P
The necessary volume of sales is 80,318 units and the dollar sales level is $5,300,988 required to provide the 6 per cent increase in profits of Company S; assuming that the maximum price increase is implemented.
Explanation of Solution
Target volume: the level of sales which need to be achieved during a particular period of time is termed as target volume.
Target profit: the amount of profit which needs to be achieved during a particular period of time on a particular level of sales is termed as target profit.
Compute the volume of sales and the dollar sales level necessary to provide the 6 per cent increase in profits of Company S; assuming that the maximum price increase is implemented:
Working note 6:
Compute the target volume to provide the 6 per cent increase in profit of Company S:
Thus, the target volume is 80,318 and target dollar sales are $5,300,988 at the current level of profit
Working note 7:
Compute the desired profit:
c.
Compute the price increase required to attain the 6 per cent increase in profit when the volumes of sales were to remain at 80,000 units.
c.
Answer to Problem 49P
The price decrease required to attain the 6 per cent increase in profit when the volumes of sales were to remain at 80,000 units is $6.125 which is 10.2%
Explanation of Solution
Compute the price increase required to attain the 6 per cent increase in profit when the volumes of sales were to remain at 80,000 units:
Thus, the price should be increased by $6.125 to attain a 6% increase in profit.
Working note 8:
Let
Sales price: P
Put the values in the profit equation:
Thus,
Want to see more full solutions like this?
Chapter 3 Solutions
Gen Combo Fundamentals Of Cost Accounting; Connect Access Card
- Break-even sales under present and proposed conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of 188 per unit during the current year. Its income statement is as follows: The division of costs between variable and fixed is as follows: Management is considering a plant expansion program for the following year that will permit an increase of 11,280,000 in yearly sales. The expansion will increase fixed costs by 5,000,000 but will not affect the relationship between sales and variable costs. Instructions 1. Determine the total variable costs and the total fixed costs for the current year. 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. 3. Compute the break-even sales (units) for the current year. 4. Compute the break-even sales (units) under the proposed program for the following year. 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the 60,000,000 of operating income that was earned in the current year. 6. Determine the maximum operating income possible with the expanded plant. 7. If the proposal is accepted and sales remain at the current level, what will the operating income or loss be for the following year? 8. Based on the data given, would you recommend accepting the proposal? Explain.arrow_forwardBolger and Co. manufactures large gaskets for the turbine industry. Bolgers per-unit sales price and variable costs for the current year are as follows: Bolgers total fixed costs aggregate to 360,000. Bolgers labor agreement is expiring at the end of the year, and management is concerned about the effects of a new labor agreement on its break-even point in units. The controller performed a sensitivity analysis to ascertain the estimated effect of a 10-per-unit direct labor increase and a 10,000 reduction in fixed costs. Based on these data, the break-even point would: a. decrease by 1,000 units. b. decrease by 125 units. c. increase by 375 units. d. increase by 500 units.arrow_forwardFinancial and Nonfinancial Aspects of Changing to JIT IntelliTalk manufactures smart phones. It is considering the implementation of a JIT system. Costs to reconfigure the production line will amount to 200,000 annually. Estimated benefits from the change to JIT are as follows: The quality advantages of JIT should reduce current rework cost of 300,000 by 25%. Materials storage, handling, and insurance costs of 250,000 would be reduced by an estimated 40%. Average inventory is expected to decline by 300,000 units, and the carrying cost per unit is .35. Required: 1. What is the estimated financial advantage or disadvantage of changing to a JIT system? 2. Are there any nonfinancial advantages or disadvantages of changing to a JIT system?arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Principles of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning