Directions:

Solve the following problems using Excel. Submit your homework including the calculations in the corresponding forum, during this week. 1. Sounds Inc., produces amplifiers. Each unit is sold for $1,000. A Below is the sales, production, and cost information for the 2016:

Production and sales in units

Production Costs

Administrative and sales expenses

January 105 $88,860 $23,570

February 117 97,600 25,570

March 97 83,007 22,495

April 106 89,600 23,720

May 115 96,200 24,95

June 125 103,500 26,250

July 128 105,670 26,690

August 132 108,550 27,200

September 138 112,978 28,030

October 126 104,200 26,400

November 124 102,750 26,150

December 108 91,050 23,990

___________________________________________________________________________

Total 1,421 $1,183,965 $304,645

Average Cost per unit $833.19141 $214.3877

a. Use the high-low method to identify fixed cost components and variables, both for the production costs and for the costs of sales and administrative.

b. The company estimates that production and sales in 2017 will be 1,750 units. Based on this estimate, forecast revenue before taxes for 2017.

2. Pfizer Inc. and Amgen, Inc. are two companies in the pharmaceutical industry. Pfizer has relatively high fixed costs related to research and developing. Amgen, however, does little research and development. In In return, the company pays for the right to produce and market medicines that have been developed by other companies. The amount paid is percentage of sales. Thus, Amgen has relatively high variable costs and relatively low fixed costs.

Sales $150,000,000 $150,000,000Me

Less variable cost 37,500,000 90,000.000

Less fixed costs 90,000,000 37,000,000

Gain $22,5000,000 $22,5000,000

1. Which company has the highest operating leverage?

2. Calculate the expected percentage change in profit for a 20 percent increase (and for a 20 percent decrease) in sales of each company.

3. Indicate which company has the highest risk.