Luke Corporation produces a variety of products, each within its own division. Last year, the managers...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Luke Corporation produces a variety of products, each within its own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.25 per case, has not had the market success that managers expected, and the company is considering dropping Bubbs. The product-line income statement for the past 12 months follows: Revenue Costs Manufacturing costs Allocated corporate costs (@5%) Product-line margin Allowance for tax (@20%) Product-line profit (loss) $14,440,395 734,108 $14,682,150 15,174,503 $ (492,353) 98,470 $ (393,883) All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a percentage of revenue. Data on corporate costs and revenues for the past two years follow: Most recent year Previous year Corporate Revenue Corporate Overhead Costs $106,750,000 76,200,000 $5,337,500 4,221,000 Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given, Andre provides you with the following data on product costs for Bubbs: Month Cases Production Costs 1 207,000 $1,139,828 2 217,200 1,161,328 3 214,800 1,169,981 4 228,000 1,185,523 5 224,400 1,187,827 6 237,000 1,208,673 7 220,200 1,183,699 8 247,200 1,226,774 9 238,800 1,225,226 10 252,600 1,237,325 11 250,200 1,241,760 12 259,200 1,272,451 Page 241 Required a. Bunk Stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporate allocation (and would not affect corporate costs). What is the minimum price Andre can offer Bunk without reducing profit any further? b. How many cases of Bubbs does Luke have to sell in order to break even on the product? c. Suppose Luke has a requirement that all products have to earn 5 percent of sales (after tax and corporate allocations) or they will be dropped. How many cases of Bubbs does Andre need to sell to avoid seeing Bubbs dropped? Luke Corporation produces a variety of products, each within its own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.25 per case, has not had the market success that managers expected, and the company is considering dropping Bubbs. The product-line income statement for the past 12 months follows: Revenue Costs Manufacturing costs Allocated corporate costs (@5%) Product-line margin Allowance for tax (@20%) Product-line profit (loss) $14,440,395 734,108 $14,682,150 15,174,503 $ (492,353) 98,470 $ (393,883) All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a percentage of revenue. Data on corporate costs and revenues for the past two years follow: Most recent year Previous year Corporate Revenue Corporate Overhead Costs $106,750,000 76,200,000 $5,337,500 4,221,000 Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given, Andre provides you with the following data on product costs for Bubbs: Month Cases Production Costs 1 207,000 $1,139,828 2 217,200 1,161,328 3 214,800 1,169,981 4 228,000 1,185,523 5 224,400 1,187,827 6 237,000 1,208,673 7 220,200 1,183,699 8 247,200 1,226,774 9 238,800 1,225,226 10 252,600 1,237,325 11 250,200 1,241,760 12 259,200 1,272,451 Page 241 Required a. Bunk Stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporate allocation (and would not affect corporate costs). What is the minimum price Andre can offer Bunk without reducing profit any further? b. How many cases of Bubbs does Luke have to sell in order to break even on the product? c. Suppose Luke has a requirement that all products have to earn 5 percent of sales (after tax and corporate allocations) or they will be dropped. How many cases of Bubbs does Andre need to sell to avoid seeing Bubbs dropped?
Expert Answer:
Answer rating: 100% (QA)
To determine the minimum price Andre can offer Bunk without reducing profit any further ... View the full answer
Related Book For
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher
Posted Date:
Students also viewed these accounting questions
-
why do business owners assign business value to team pi objectives quizlet
-
t K For the function below, find a) the critical numbers, b) the open intervals where the function is increasing; and c) the open intervals where it is decreasing. f(x) 4x-3x-36x+9 a) Find the...
-
Five years after the purchase of a machinery its value reduces to $4250. After eight years of use the value reduces to $2150. a) Find the linear equation that models value (V) in terms of time (t, in...
-
In Exercises find the positive values of p for which the series converges. n=1 n
-
A 2.00-L vessel contains 1.00 mol N2, 1.00 mol H2, and 2.00 mol NH3. What is the direction of reaction (forward or reverse) needed to attain equilibrium at 400oC? The equilibrium constant Kc for the...
-
The following information is for Cool Wave Skateboards, Inc.: Determine the contribution margin for a. Big Kahuna Skateboards and b. EastRegion. East West Sales Volume (units) Big Kahuna Easy Rider...
-
How is cost of goods sold determined?(Appendix)
-
Michael Green, CPA, is considering audit risk at the financial statement level in planning the audit of National Federal Bank (NFB) Companys financial statements for the year ended December 31, 20X1....
-
To find the distance between a point X and 17954 an inaccessible point Z, a line segment XY is constructed. Measurements show that 948 m XY = 948 m, angle XYZ = 17 54', and angle YZX = 95 24'. Find...
-
Sadie Hawkins owns The Education Supply Center, a small store that sells educational supplies. Hawkins recently approached the local bank for a loan to finance a planned expansion of her store....
-
The project management profession is often described as "leadership-intensive." For project managers, good leadership is one of the most important elements of successful project completion. Review...
-
A municipal bond has long been a valued financial instrument for individuals seeking relief from high taxes. However, as the study suggests, the right to tax-advantaged muni bonds comes with a steep...
-
The management accountant of a manufacturing company has been tasked to cost a one-off project for a customer. He is recommending to purchase a component part of the product rather than manufacture...
-
1.What is the total percentage return for an investor who purchased a stock for $5.97, received $1.73 in dividend payments, and sold the stock for $7.57?(Report answer in percentage terms and round...
-
Gilded age and Progressive era workers in America's factories Question 12 options: a) worked on tasks that required at least a college education b) worked on tasks that were highly skilled and varied...
-
? A condensed income statement by product line for Warrick Beverage Inc. indicated the following for Mango Cola for the past year: Sales $232,200 Cost of goods sold (110,000) Gross profit $122,200...
-
Havel says the grocer doesnt believe what is on the sign and indeed, he says the grocers customers will barely notice it. But Havel maintains that the sign serves a specific function. How would you...
-
During its first year of operation, Krabna Company purchased 5,600 units of a product at $42 per unit. During the second year, it purchased 6,000 units of the same product at $48 per unit. During the...
-
In chronological order, the inventory, purchases, and sales of a single product for a recent month are as follows: Using the periodic inventory system, compute the cost of ending inventory, cost of...
-
Referring to the data provided in E 9 and using the perpetual inventory system, compute the cost of ending inventory, cost of goods sold, and gross margin. Use the average-cost, FIFO, and LIFO...
Study smarter with the SolutionInn App