The Food division of Garcia Company reports the following for the current year. Sales Cost of goods sold Gross profit Expenses Income $4,000,000 2,800,000 1,200,000 1,000,000 $ 200,000 Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $600,000. Cost of goods sold will not change. Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $140,000. a. For each strategy, compute the profit margin expected for next year. b. Which strategy should Garcia choose based on expected profit margin? Complete this question by entering your answers in the tabs below. Required 1 Required 2 For each strategy, compute the profit margin expected for next year. Note: Round your answers to one decimal place. Strategy 1 Strategy 2 Profit margin Required 2 >

The Food division of Garcia Company reports the following for the current year. Sales Cost of goods sold Gross profit Expenses Income $4,000,000 2,800,000 1,200,000 1,000,000 $ 200,000 Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $600,000. Cost of goods sold will not change. Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $140,000. a. For each strategy, compute the profit margin expected for next year. b. Which strategy should Garcia choose based on expected profit margin? Complete this question by entering your answers in the tabs below. Required 1 Required 2 For each strategy, compute the profit margin expected for next year. Note: Round your answers to one decimal place. Strategy 1 Strategy 2 Profit margin Required 2 >

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 37P: Katayama Company produces a variety of products. One division makes neoprene wetsuits. The divisions...

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Keleher Industries manufactures pet doors and sells them directly to the consumer via their web site. The marketing manager believes that if the company invests in new software, they will increase their sales by 10%. The new software will increase fixed costs by $400 per month. Prepare a forecasted contribution margin income statement for Keleher Industries reflecting the new software cost and associated increase in sales. The previous annual statement is as follows:
Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of 22 each in the coming year. Total variable costs equal 1,086,800. Total fixed costs equal 8,000,000. (Round all ratios to four significant digits, and round all dollar amounts to the nearest dollar.) Required: 1. What is the contribution margin per unit? What is the contribution margin ratio? 2. Calculate the sales revenue needed to break even. 3. Calculate the sales revenue needed to achieve a target profit of 245,000. 4. What if the average price per unit increased to 23.50? Recalculate: a. Contribution margin per unit b. Contribution margin ratio (rounded to four decimal places) c. Sales revenue needed to break even d. Sales revenue needed to achieve a target profit of 245,000
Katayama Company produces a variety of products. One division makes neoprene wetsuits. The divisions projected income statement for the coming year is as follows: Required: 1. Compute the contribution margin per unit, and calculate the break-even point in units. Repeat, using the contribution margin ratio. 2. The divisional manager has decided to increase the advertising budget by 140,000 and cut the average selling price to 200. These actions will increase sales revenues by 1 million. Will this improve the divisions financial situation? Prepare a new income statement to support your answer. 3. Suppose sales revenues exceed the estimated amount on the income statement by 612,000. Without preparing a new income statement, determine by how much profits are underestimated. 4. How many units must be sold to earn an after-tax profit of 1.254 million? Assume a tax rate of 34 percent. (Round your answer up to the next whole unit.) 5. Compute the margin of safety in dollars based on the given income statement. 6. Compute the operating leverage based on the given income statement. (Round to three significant digits.) If sales revenues are 20 percent greater than expected, what is the percentage increase in profits?
Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?
Macom Manufacturing has total contribution margin of $61,250 and net income of $24,500 for the month of June. Marcus expects sales volume to increase by 10% in July. What are the degree of operating leverage and the expected percent change in income for Macom Manufacturing? 0.4 and 10% 2.5 and 10% 2.5 and 25% 5.0 and 50%
The Food division of Garcia Company reports the following for the current year. $ 4,060,000 2,820,000 1,240,000 1,050,000 $ 190,000 Sales Cost of goods sold Gross profit Expenses Income Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $620,000. Cost of goods sold will not change. Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $134,800. a. For each strategy, compute the profit margin expected for next year. b. Which strategy should Garcia choose based on expected profit margin? Complete this question by entering your answers in the tabs below. Required 1 Required 2 For each strategy, compute the profit margin expected for next year. (Round your answers to one decimal place.) Profit margin Strategy 1 Strategy 2 % % Required 1 Required 2 >
The Food division of Garcia Company reports the following for the current year. Sales Cost of goods sold Gross profit Expenses Income Garcia wants to achieve at least a 10% profit margin next year. Two alternative strategies are proposed. Strategy 1: Increase advertising expenses by $225,000. The company expects this to increase sales by $660,000. Cost of goods sold will not change. Strategy 2: Develop a more efficient manufacturing process. This will decrease cost of goods sold by $127,000. a. For each strategy, compute the profit margin expected for next year. b. Which strategy should Garcia choose based on expected profit margin? Complete this question by entering your answers in the tabs below. Required 1 $ 4,180,000 2,860,000 1,320,000 1,029,000 $ 291,000 Required Strategy 1 Strategy 2 For each strategy, compute the profit margin expected for next year. Note: Round your answers to one decimal place. Profit margin % %
A company is making plans for next year, using cost-volume-profit analysis as its planning tool. Next year's sales data about its product are as follows Selling price P60 Variable manufacturing costs per unit 22.50 Variable selling and administrative costs 4.5 Fixed operating costs (60% is manufacturing costs) P159,500 Income tax rate 30% How much should sales be next year if the company wants to earn profit after tax of P23,100, the same amount that it earned last year?
Baker Company has a product that sells for $20 per unit. The variable expenses are $12 per unit, and fixed expenses total $30,000 per year. Compute for the following:c. If total sales increase by $20,000 and fixed expenses remain unchanged, by how much would net operating income be expected to increase?d. The marketing manager wants to increase advertising by $6,000 per year. How many additional units would have to be sold to increase overall net operating income by $2,000?
Given the above information in Q1, Shannon’s wants to increase its sales to retailers by 20% in the next year. Management estimates that the incremental promotion program required to generate sufficient demand to boost sales by 20% will be: Personal Selling Costs $ 60,000 (exclusive of commission) Consumer Advertising $ 58,296 Trade Promotion $ 41,369 Sales Promotion $ 25,000 Shannon’s will need to hire an additional sales person (paid a salary and commission) and provide some added administrative support. The sales person’s salary plus administrative support will cost about $60,000 per year. The sales person’s commission will be the equivalent of $0.05 per six pack sold. The incremental costs of consumer advertising, trade promotion, and sales promotion necessary to support sales in the new market will be substantial as indicated in the table above. How many six packs must be sold to break-even on the incremental costs that…
The marketing manager thinks that increasing the advertising by $10,000 would generate a 10% increase in monthly sales. If these changes are made, what is the change (how much more income will result ) in net income? The selling price is $120 per unit. The variable cost is $78 per unit. Fixed expenses are $249,480 per month. The company is currently selling 6,000 units. O $25,620 O $25,200 O $15,200 O $15,620
Violet Sales Corp, reports the year-end information from 2023 as follows: Sales (35,500 units) $284,000 Cost of goods sold 105,000 Gross margin 179,000 Operating expenses 152,000 Operating income $27,000 Violet is developing the 2024 budget. In 2024 the company would like to increase selling prices by 3.5%, and as a result expects a decrease in sales volume of 14%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost. What is budgeted sales for 2024?