Without doing any calculations, indicate whether the suggested change in the allocation of fixed manufacturing costs...

 

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Without doing any calculations, indicate whether the suggested change in the allocation of fixed manufacturing costs would increase, decrease, or leave unchanged next year's estimated pre-tax income. Why? Would cash flow increase, decrease, or remain the same? Why? Because Wendy showed an interest in accounting matters, you showed her the budget based on the sales manager's predictions. "Dream on," was her response. "Our sales people are perpetually optimistic and ignore our marketing research. Those sales volumes aren't achievable with our existing products. Our lipstick and I nail polish appeals primarily to lower-income women aged 45 to 75. As these women are aging, they are buying fewer cosmetics. It is a bit morbid to say it, but we are stuck in a dying market niche." After two weeks with Luxor, you take time to reflect on your career prospects. The challenges the firm faces seem much more difficult than you had anticipated. Further, you are not comfortable with the thought of presenting to the bank any of the budgets you have prepared. You have a lunch meeting scheduled with Mr. Luxton tomorrow. Without doing any calculations, indicate whether the suggested change in the allocation of fixed manufacturing costs would increase, decrease, or leave unchanged next year's estimated pre-tax income. Why? Would cash flow increase, decrease, or remain the same? Why? Because Wendy showed an interest in accounting matters, you showed her the budget based on the sales manager's predictions. "Dream on," was her response. "Our sales people are perpetually optimistic and ignore our marketing research. Those sales volumes aren't achievable with our existing products. Our lipstick and I nail polish appeals primarily to lower-income women aged 45 to 75. As these women are aging, they are buying fewer cosmetics. It is a bit morbid to say it, but we are stuck in a dying market niche." After two weeks with Luxor, you take time to reflect on your career prospects. The challenges the firm faces seem much more difficult than you had anticipated. Further, you are not comfortable with the thought of presenting to the bank any of the budgets you have prepared. You have a lunch meeting scheduled with Mr. Luxton tomorrow.

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