10 May IF PETER WISHES TO EARN A MINIMUM OF $65 000 PER YEAR (BEFORE TAXES) CAN HE AFFORD THE DONATION?
PETER’S PET TOYS makes toys and supplies for cats and dogs out of reusable/recycled materials when possible. All problems and exercises are based on PETER’S PET TOYS.Week 4 (20 PTS) If you recall from week 3…Total sales for the current year for Peter’s Pet Toys were $980 000.Looking ahead to next year projections are for $1 million in sales. Fixed Expenses are estimated at $568 000. There are three main products sold by Peter’s Pet Toys: Cat Castles Dog Dens and Pet Palaces. Based on past experience the sales mix contribution margin ratio for each has been:.364px;=”” collapse;=”” 12px=””>Product% of Sales ($1 million estimate)CM RatioCat Castle45`%Dog Den35r%Pet Palace20g% Required:a. Prepare a contribution margin/variable income statement in good form to show the sales mix stated and the contribution margins for each product as well as the contribution margin for the company. The time frame is next year.b. Calculate the break even point in sales dollars.c. Peter is considering adding a yearly donation of $20 000 to animal charities which would be considered a fixed cost. If Peter factors in this addition to fixed expenses for next year what would his breakeven point be?d. If Peter wishes to earn a minimum of $65 000 per year (before taxes) can he afford the donation?The before taxes stipulation coincides with the contribution margin income statement providing net operating income as the final result not net income. You do not need to try to calculate for taxes.e. If Peter wished to review his advertising budget which product should receive more promotion and why?f. Using the figures from the TOTALS column assuming the $20 000 donation is added to fixed costs and becomes part of the annual fixed costs answer the following questions in a color other than black. Each item is an independent scenario. The “what if” questions are not cumulative.(1) If sales do not increase as anticipated and remain $980K from the previous year what would NOI be?(2) If Peter sets a target profit of only $50 000 NOI what level of sales (in dollars) would generate $50 000?(3) If sales volume increased 6% beyond original projections of $1 000 000 what would NOI be?(4) Peter is concerned that a competitor’s cheaper products may result in a decrease of his original anticipated sales volume by 5%. He also believes both variable costs and fixed costs (exclusive of the $20 000 donation which will remain unchanged year after year) could increase by 3%. In this scenario what is Peter’ Pet Toys NOI (or NOL) Contribution Margin Ratio and Breakeven point in dollars?
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