Manatau Company produces three types of dog foods, Kibble Dog Food, Canned Dog Food and Semi-Moist...

     

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Manatau Company produces three types of dog foods, Kibble Dog Food, Canned Dog Food and Semi-Moist Dog Food. The company has been profitable and operated at capacity for many years. However, in the last two years, prices on all dog foods were reduced and selling expenses increased to meet competition and to keep the plant operating at capacity. The current trend on nutrition and healthy dog foods has driven up the prices for ingredients used by Manatau Company. The company's cost accountant just completed the latest quarterly report of the current year for Manatau Company's three major product lines: Sales Cost of goods sold Gross profit Selling and admin expenses Income before tax Selling price Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing cost Kibble Dog Food $2,400,000 $1,572,000 Advertising and promotion (quarterly) Shipping (per unit) $828,000 $555,000 $273,000 Kibble Dog Food $300.00 $46.50 $60.00 $67.50 $22.50 $196.50 The cost accountant also assembled the following information relating to selling price per unit and manufacturing cost per unit for each of the three product lines: Canned Dog Food Kibble Dog Food $1,350,000 $1,155,000 $315,000 $15.00 $195,000 $277,500 ($82,500) Canned Dog Food $135.00 $25.50 $30.00 $45.00 $15.00 $115.50 Semi-Moist Dog Food $1,350,000 $1,425,000 ($75,000) $202,500 ($277,500) The company is manufacturing at capacity and is selling all the dog foods it produces. All three product lines are manufactured with common equipment and facilities. The selling and administrative expense is allocated to the three product lines based on average sales volume over the past three years. Special selling expenses, primarily advertising and promotion and shipping, for each product line, are as follows: Canned Dog Food $150,000 $6.00 Semi-Moist Dog Food $270.00 $75.00 $90.00 $90.00 $30.00 $285.00 Semi-Moist Dog Food $60,000 $15.00 The Chief Executive Officer (CEO) of Manatau Company is concerned about the results of the quarterly report, and she suggested the following options to the Chief Financial Officer (CFO) of Manatau Company: Increase quarterly sales promotion by $150,000 on Kibble Dog Food in order to increase sales volume by is percent. Cut production on Canned Dog Food by 50 percesat and cut the tracesble advertising and promotion for this product line to $30,000 each quarter. Discontinued the Semi - Moist Dog Food immediately. The CEO is of the opinion that Semi - Moist Dog Food would not be returned to the prodoction unless the problems ean be identified and resolved. fler reviewing the quarterly report, the CFO asked the cost accountant to prepare an analysis delermine the financial relationships and the possible effects of the proposed options on fanatan Company's operating results. The CFO pointed out that the current income statement presented by the cost accountant is not suitable for analysis and docision making. Assume that the proposed options by the CEO had been implemented at the heginning of the quarter. Show Manatau Company's income before tax for each of the three proposed options. Consider each option independently. Manatau Company produces three types of dog foods, Kibble Dog Food, Canned Dog Food and Semi-Moist Dog Food. The company has been profitable and operated at capacity for many years. However, in the last two years, prices on all dog foods were reduced and selling expenses increased to meet competition and to keep the plant operating at capacity. The current trend on nutrition and healthy dog foods has driven up the prices for ingredients used by Manatau Company. The company's cost accountant just completed the latest quarterly report of the current year for Manatau Company's three major product lines: Sales Cost of goods sold Gross profit Selling and admin expenses Income before tax Selling price Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing cost Kibble Dog Food $2,400,000 $1,572,000 Advertising and promotion (quarterly) Shipping (per unit) $828,000 $555,000 $273,000 Kibble Dog Food $300.00 $46.50 $60.00 $67.50 $22.50 $196.50 The cost accountant also assembled the following information relating to selling price per unit and manufacturing cost per unit for each of the three product lines: Canned Dog Food Kibble Dog Food $1,350,000 $1,155,000 $315,000 $15.00 $195,000 $277,500 ($82,500) Canned Dog Food $135.00 $25.50 $30.00 $45.00 $15.00 $115.50 Semi-Moist Dog Food $1,350,000 $1,425,000 ($75,000) $202,500 ($277,500) The company is manufacturing at capacity and is selling all the dog foods it produces. All three product lines are manufactured with common equipment and facilities. The selling and administrative expense is allocated to the three product lines based on average sales volume over the past three years. Special selling expenses, primarily advertising and promotion and shipping, for each product line, are as follows: Canned Dog Food $150,000 $6.00 Semi-Moist Dog Food $270.00 $75.00 $90.00 $90.00 $30.00 $285.00 Semi-Moist Dog Food $60,000 $15.00 The Chief Executive Officer (CEO) of Manatau Company is concerned about the results of the quarterly report, and she suggested the following options to the Chief Financial Officer (CFO) of Manatau Company: Increase quarterly sales promotion by $150,000 on Kibble Dog Food in order to increase sales volume by is percent. Cut production on Canned Dog Food by 50 percesat and cut the tracesble advertising and promotion for this product line to $30,000 each quarter. Discontinued the Semi - Moist Dog Food immediately. The CEO is of the opinion that Semi - Moist Dog Food would not be returned to the prodoction unless the problems ean be identified and resolved. fler reviewing the quarterly report, the CFO asked the cost accountant to prepare an analysis delermine the financial relationships and the possible effects of the proposed options on fanatan Company's operating results. The CFO pointed out that the current income statement presented by the cost accountant is not suitable for analysis and docision making. Assume that the proposed options by the CEO had been implemented at the heginning of the quarter. Show Manatau Company's income before tax for each of the three proposed options. Consider each option independently.

Answer rating: 100% (QA)

Answer To analyze the financial effects of each proposed option on Manatau Companys income before tax we need to recalculate the income before tax for each product line under the proposed changes Lets ... View the full answer