The Central Valley Company is a manufacturing firm that produces and sells a single product. The company?s revenues and expenses for the last four months are given below.

Required:

1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs.

2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 66,000 units are sold during the year.

3. Calculate the change in profit if the selling price were reduced by $4 each and annual sales were to increase by 5,000 units.

4. Determine the change in profit if the company were to increase advertising by $100,000 and if this were to increase sales by 5,000 units.

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Central Valley Company Comparative Income Statement April March May June Sales in units 5,000 4,500 5,250 6,000 $ 700,000 $ 630,000 $ 735,000 $ 840,000 Sales revenue Less: Cost of goods sold 342,000 370,000 379,000 426,000 $ 356,000 Gross margin $ 330,000 $ 288,000 $ 414,000 Less: Operating Expenses $ 61,500 $ 56,000 $ 65,000 $ 71,000 Shipping expense Central Valley Company Comparative Income Statement March April May June Advertising expense 70,000 70,000 70,000 70,000 Salaries and commissions 160,800 143,000 161,500 180,500 Insurance expense 9,000 9,000 9,000 9,000 Amortization expense 42,000 42,000 42,000 42,000 Total operating expenses $343,000 $ 320,000 $ 347,500 $ 372,500 Net income $ (13,300) $ (32,000) 2$ 8,500 $ 41,500