Refer to the original data. Assume that the company sold 42,000 units last year. The sales...
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Refer to the original data. Assume that the company sold 42,000 units last year. The sales manager is convinced that a 2% reduction in the selling price, combined with a $152,000 increase in advertising expenditures, would increase annual unit sales by 30%. Prepare two contribution format income statements: one showing the results of last year's operations, and one showing what the results of operations would be if these changes were made. Sales Less: Variable expenses Contribution margin Less: Fixed expenses Net operating income Answer is not complete. Last Year Proposed Total $840,000 $ Per Unit 20.00 Total Per Unit 252,000 6.00 588,000 $ 14.00 420,000 $ 168,000 Stratford Company distributes a lightweight lawn chair that sells for $20 per unit. Variable expenses are 30% of sales, and fixed expenses total $420,000 annually. Required: Answer the following independent questions: 1. What is the product's CM per unit? Contribution margin per unit $ 14 2. Use the CM per unit to determine the break-even point in units. Break-even point in units 30,000 3. The company estimates that sales will increase by $105,000 during the coming year due to increased demand. By how much should net operating income increase? Increase in operating income $ 73,500 4. Assume that the operating results for last year were as follows: Sales $800,000 Less: Variable expenses 240,000 Contribution margin 560,000 Less: Fixed expenses 420,000 Net operating income $140,000 a. Compute the degree of operating leverage at the current level of sales. (Round your answer to 1 decimal place.) Degree of operating leverage 4.0 b. The president expects sales to increase by 20% next year. By how much should net operating income increase? Increase in operating income $ 112,000 5-a. Refer to the original data. Assume that the company sold 42,000 units last year. The sales manager is convinced that a 2% reduction in the selling price, combined with a $152,000 increase in advertising expenditures, would increase annual unit sales by 30%. Prepare two contribution format income statements: one showing the results of last year's operations, and one showing what the results of operations would be if these changes were made. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.) Last Year Total Per Unit Total Sales $ 840,000 $ 20.00 Less: Variable expenses 252,000 6.00 Contribution margin 588,000 $ 14.00 Less: Fixed expenses Net operating income 420,000 168,000 Proposed Per Unit 6. Refer to the original data. Assume again that the company sold 42,000 units last year. The president feels that it would be unwise to change the selling price. Instead, she wants to increase the sales commission by $2 per unit. She thinks that this move, combined with some increase in advertising, would double annual unit sales. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach. Increase in advertisement cost Refer to the original data. Assume that the company sold 42,000 units last year. The sales manager is convinced that a 2% reduction in the selling price, combined with a $152,000 increase in advertising expenditures, would increase annual unit sales by 30%. Prepare two contribution format income statements: one showing the results of last year's operations, and one showing what the results of operations would be if these changes were made. Sales Less: Variable expenses Contribution margin Less: Fixed expenses Net operating income Answer is not complete. Last Year Proposed Total $840,000 $ Per Unit 20.00 Total Per Unit 252,000 6.00 588,000 $ 14.00 420,000 $ 168,000 Stratford Company distributes a lightweight lawn chair that sells for $20 per unit. Variable expenses are 30% of sales, and fixed expenses total $420,000 annually. Required: Answer the following independent questions: 1. What is the product's CM per unit? Contribution margin per unit $ 14 2. Use the CM per unit to determine the break-even point in units. Break-even point in units 30,000 3. The company estimates that sales will increase by $105,000 during the coming year due to increased demand. By how much should net operating income increase? Increase in operating income $ 73,500 4. Assume that the operating results for last year were as follows: Sales $800,000 Less: Variable expenses 240,000 Contribution margin 560,000 Less: Fixed expenses 420,000 Net operating income $140,000 a. Compute the degree of operating leverage at the current level of sales. (Round your answer to 1 decimal place.) Degree of operating leverage 4.0 b. The president expects sales to increase by 20% next year. By how much should net operating income increase? Increase in operating income $ 112,000 5-a. Refer to the original data. Assume that the company sold 42,000 units last year. The sales manager is convinced that a 2% reduction in the selling price, combined with a $152,000 increase in advertising expenditures, would increase annual unit sales by 30%. Prepare two contribution format income statements: one showing the results of last year's operations, and one showing what the results of operations would be if these changes were made. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.) Last Year Total Per Unit Total Sales $ 840,000 $ 20.00 Less: Variable expenses 252,000 6.00 Contribution margin 588,000 $ 14.00 Less: Fixed expenses Net operating income 420,000 168,000 Proposed Per Unit 6. Refer to the original data. Assume again that the company sold 42,000 units last year. The president feels that it would be unwise to change the selling price. Instead, she wants to increase the sales commission by $2 per unit. She thinks that this move, combined with some increase in advertising, would double annual unit sales. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach. Increase in advertisement cost
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To prepare the contribution format income statements we need to calculate the values based on the given information Contribution Format Income Stateme... View the full answer
Related Book For
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
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