CVP analysis Alvarez Garcia grew up always working with his father in a woodshop in their back
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These toy-shop owners are Alvarez's best source of information for new products and demand. In order to plan for the Christmas rush, Alvarez travelled to some of the stores and sat down with the owners to get their opinions. What he discovered is as follows: Customers are willing to pay up to 10% more in order to have the wooden toys in higher-quality, rarer woods.
Higher-quality packaging with a more upscale design would increase sales by about 8%. Increasing the regular price on the product lines by 5% will reduce the number of units sold by 5%. Adding a complete product line on wooden people to accompany the building sets will add 60,000 units to sales, but will take away sales from each of the other lines by 14%. It is possible that the addition of the wooden people will make the lines of toys even more appealing to young girls and bring additional new sales for all of the lines, but this is still speculation.
Alvarez went back to work and dug up some additional information regarding these potential changes, but didn't know how to actually turn all of this information into a decision.
He looked into sourcing new, exotic woods for the toys and discovered that the cost of DM would increase by 55% in order to obtain these rarer types of wood. The packaging redesign could be done with a one-time design fee for $100,000 and an ongoing increase in shipping costs (Selling) of $0.75 per package. The new product line of wooden people would sell for $40 per set and the costs associated with the line would be DM = $5 DL = $2 VMOH = $2. The variable selling expenses (VSell) and variable general and administrative expenses (VG&A) would remain the same per unit as for the other products. FMOH = an additional $50,000 per year, fixed selling expenses (FSelling) = an additional $25,000 per year.
The income statement for Shining Oaks Toy Company Inc. is as follows:
Note: Each of these options should be examined independently with the original information. The product costs for all of the current lines are the same with the following amounts:
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Related Book For
Managerial Accounting
ISBN: 978-0133025071
2nd canadian edition
Authors: Karen W. Braun, Wendy M. Tietz, Rhonda Pyper
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