The management of Fresno Processing Company has engaged you to assist in the development of information to
Question:
The management of Fresno Processing Company has engaged you to assist in the development of information to be used for management decisions.
The company has the capacity to process 20,000 tons of cottonseed per year. This processing results in several salable products, including oil, meal, hulls, and lint.
A marketing study indicates that the company can sell its output for the coming year at $200 per ton processed.
You have determined the company’s cost structure to be as follows:
Cost of cottonseed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .,$80 per ton
Processing costs:
Variable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26 per ton
Fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $340,000 per year
Marketing costs (All variable) ………………………………..$44 per ton
Administrative costs (All fixed). . . . . . . . . . . . . . . . . . . . . . . . $300,000 per year
Instructions
a. Compute ( 1 ) the contribution margin per unit and ( 2 ) the contribution margin ratio per ton of cottonseed processed.
b. Compute the break-even sales volume in tons of cottonseed.
c. Assume that the company’s budget calls for an operating income of $240,000. Compute the sales volume required to reach this profit objective, stated in dollars.
d. Prepare an income statement using contribution margin format if the company budget sale of 10000 units.
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen