Queen Mary Company manufactures and sells an answering machine. The company's contribution format profit and loss account
Question:
Queen Mary Company manufactures and sells an answering machine. The company's contribution format profit and loss account for the last years is as below:
Unit percentage of Total Sales Sales
(20,000 units) ₤1,200,000 ₤60 100%
Less variable expenses 900,000 ₤45 ?%
Contribution margin 300,000 ₤15 ?%
Less fixed expense 240,000
profit ₤60,000
Management was worried about improving the company's profit performance and requested some information.
Required:
1. Calculate the company's margin of safety in both pounds and percentage formats.
2. Management is considering using a higher quality speaker in an effort to increase sales and profits. A better quality speaker will increase variable costs by ₤3 per unit, but management can eliminate a quality inspector who is paid ₤30,000 salary per year. The sales manager estimates that better quality speaker will increase annual sales by at least 20%.
(a) Prepare an estimated profit and loss account for the next year, assuming the changes are made as described above. Show data in total, per unit and percentage basis.
(b) Calculate the company's new breakeven point in both sales units and pounds. Use the CM method.
(c) Would you recommend making changes?
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher