In an attempt to improve profit performance, Anderson Company's management is considering a number of alternative...

 

Transcribed Image Text:

In an attempt to improve profit performance, Anderson Company's management is considering a number of alternative actions. An October contribution income statement for Anderson Company follows. Sales (12,000 units x $75).. Less variable costs ANDERSON COMPANY Contribution Income Statement For Month of October Direct materials (12,000 units x $10). Direct labor (12,000 units x $10) .... Variable factory overhead (12,000 units x $4) Selling and administrative (12,000 units x $2) Contribution margin (12,000 units x $49).. Less fixed costs Factory overhead ... Selling and administrative... Net income (loss)..... $120,000 120,000 48,000 24,000 360,000 240,000 Required Determine the effect of each of the following independent situations on monthly profit. $900,000 (312,000) 588,000 (600,000) $ (12,000) a. Purchasing automated assembly equipment, which should reduce direct labor costs by $4 per unit and increase variable overhead costs by $1 per unit and fixed factory overhead by $12,000 per month. b. Reducing the selling price by $5 per unit. This should increase the monthly sales by 3,000 units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed factory overhead by $4,000 per month and fixed selling and administrative costs by $1,800 per month. c. Buying rather than manufacturing a component of Anderson's final product. This will increase direct materials costs by $5 per unit. However, direct labor will decline $3 per unit, variable factory overhead will decline $1 per unit, and fixed factory overhead will decline $25,000 per month. d. Increasing the unit selling price by $5 per unit. This action should result in a 2,000-unit decrease in monthly sales. e. Combining alternatives (a) and (d). In an attempt to improve profit performance, Anderson Company's management is considering a number of alternative actions. An October contribution income statement for Anderson Company follows. Sales (12,000 units x $75).. Less variable costs ANDERSON COMPANY Contribution Income Statement For Month of October Direct materials (12,000 units x $10). Direct labor (12,000 units x $10) .... Variable factory overhead (12,000 units x $4) Selling and administrative (12,000 units x $2) Contribution margin (12,000 units x $49).. Less fixed costs Factory overhead ... Selling and administrative... Net income (loss)..... $120,000 120,000 48,000 24,000 360,000 240,000 Required Determine the effect of each of the following independent situations on monthly profit. $900,000 (312,000) 588,000 (600,000) $ (12,000) a. Purchasing automated assembly equipment, which should reduce direct labor costs by $4 per unit and increase variable overhead costs by $1 per unit and fixed factory overhead by $12,000 per month. b. Reducing the selling price by $5 per unit. This should increase the monthly sales by 3,000 units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed factory overhead by $4,000 per month and fixed selling and administrative costs by $1,800 per month. c. Buying rather than manufacturing a component of Anderson's final product. This will increase direct materials costs by $5 per unit. However, direct labor will decline $3 per unit, variable factory overhead will decline $1 per unit, and fixed factory overhead will decline $25,000 per month. d. Increasing the unit selling price by $5 per unit. This action should result in a 2,000-unit decrease in monthly sales. e. Combining alternatives (a) and (d).

Answer rating: 100% (QA)

a Sl No Particulars Amount Amount A Sales 12000 units 75 90000000 B Direct Materials 12000 units 10 12000000 C Direct Labour 12000 units 6 7200000 D V... View the full answer