29 Jun uestion Cost-Volume-Profit Analysis, Multiple Products
uestion
Cost-Volume-Profit Analysis, Multiple Products
76. Boise Company manufactures and sells three products: Good, Better, and Best. Annual fixed costs are $3,315,000, and data about the three products follow.
Good
Better
Best
Sales mix in units
30%
50%
20%
Selling price
$250
$350
$500
Variable cost
100
150
250
Required:
A. Determine the weighted-average unit contribution margin.
B. Determine the break-even volume in units for each product.
C. Determine the total number of units that must be sold to obtain a profit for the company of $234,000.
D. Assume that the sales mix for Good, Better, and Best is changed to 50%, 30%, and 20%, respectively. Will the number of units required to break-even increase or decrease? Explain. Hint: Detailed calculations are not needed to obtain the proper solution.
Cost-Volume-Profit Analysis, Multiple Products
77. Alphabet Corporation sells three products: J, K, and L. The following information was taken from a recent budget:
J
K
L
Unit sales
40,000
130,000
30,000
Selling price
$60
$80
$75
Variable cost
40
65
50
Total fixed costs are anticipated to be $2,450,000.
Required:
A. Determine Alphabet’s sales mix.
B. Determine the weighted-average contribution margin.
C. Calculate the number of units of J, K, and L that must be sold to break even.
D. If Alphabet desires to increase company profitability, should it attempt to increase or decrease the sales of product K relative to those of J and L? Briefly explain.
Traditional and Contribution Income Statements
78. Price Publications, Inc., produces and sells business books. The results of the company’s operations for the year ended December 31, 20×1, are given below.
Sales revenue
$400,000
Manufacturing costs:
Fixed
100,000
Variable
200,000
Selling costs:
Fixed
10,000
Variable
20,000
Administrative costs:
Fixed
24,000
Variable
6,000
Required:
A. Prepare a traditional income statement for the company.
B. Prepare a contribution income statement for the company.
C. Which income statement (traditional or contribution) would an operating manager most likely use to study changes in operating income that are caused by changes in sales? Why?
Traditional and Contribution Income Computations
79. High Point Corporation reported sales revenues of $1,850,000 for the period just ended. Cost of goods sold, selling expenses, and administrative expenses totaled $1,200,000, $280,000, and $170,000, respectively. A detailed analysis of the latter three amounts revealed respective fixed cost components of $780,000, $60,000, and $130,000.
Required:
A. Determine the amounts that High Point would report on a traditional income statement for (1) gross margin, (2) contribution margin, and (3) net income.
B. Determine the amounts that High Point would report on a contribution income statement for (1) gross margin, (2) contribution margin, and (3) net income.
C. Which of the two income statements (traditional or contribution) is more useful for studying a company’s cost-volume-profit relationships.
Cost Structure, Operating Leverage
80. Once upon a time, two brothers (Barry and Larry) dreamt about owning and operating companies in the same line of business. Barry believed in maintaining a very large, highly efficient manual labor force; Larry, on the other hand, favored automated-production processes. One business was located in Madison and the other was located in Austin. Recent data follow.
Madison
Austin
Sales
$2,000,000
$2,000,000
Contribution margin
1,700,000
400,000
Net income
150,000
150,000
Required:
A. Which of the two businesses, Madison or Austin, has the highest level of (1) variable cost and (2) highest level of fixed cost? Explain how you determined your answer.
B. Determine the probable owner of the firm located in (1) Madison and (2) Austin. Briefly explain your logic.
C. Compute the operating leverage factor for Madison and Austin.
D. Suppose that both Madison and Austin had the opportunity to increase sales by 10%. Which of the two locations would experience a larger percentage change in net income? Why?
Operating Leverage
81. Metropolitan Enterprises is studying the addition of a new product that would have an expected selling price of $160 and expected variable cost of $100. Anticipated demand is 8,000 units.
A new salesperson must be hired because the company’s current sales force is working at capacity. Two compensation plans are under consideration:
Plan 1: An annual salary of $32,000 plus 10% commission based on gross sales dollars
Plan 2: An annual salary of $140,000 and no commission
Required:
A. What is meant by the term “operating leverage”?
B. Calculate the contribution margin and net income of the two plans at 8,000 units.
C. Compute the operating leverage factor of the two plans at 8,000 units. Which of the two plans is more highly leveraged? Why?
D. Assume that a general economic downturn occurred during year no. 2, with product demand falling from 8,000 to 6,400 units. By using the operating leverage factors, determine and show which plan would produce a larger percentage decrease in net income.
DISCUSSION QUESTIONS
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.