1. TheApexDivisionhadbeenaninternalstartupintheCattyWampusincubatorgroup before emerging a few years ago as a standalone division housed in the corporate offices. Apex currently has $4,950,000 in assets with yearly fixed costs of $650,000. The variable costs of its product line are $1.40 per unit. The divisions volume is currently 480,000 units. Competitors offer a similar product, at the same quality, to retailers for $3.75 each. Wayne wants to earn a 10% return on investment on the divisions assets.

a. WaynesuspectsthatApexisnotearning10%onthecompanysassetssohehas asked you to prepare an income statement in contribution margin format based upon its current cost structure.

b. Based upon the contribution margin income statement prepared in (a) is Apex earning 10 percent on its assets.

i. If not what is the shortfall or surplus. ii. To earn the target profit how many more units does Apex need to

sell.

Case 04 Due: April 21, 2017 75 points

Case 04, Part 02: Cattywampus ACCT 201B Hoffman (Spring 2017)

At its current volume of 480,000 units how much per unit does Apex have to increase its price to achieve their goal.

Given the division has a formidable competitor assume Apex cannot increase their price without losing market share. How much will Apex have to reduce their variable costs per unit to achieve their target.

c. AssumeApexhasidentifiedwaystocutitsvariablecoststo$1.25perunit. i. How much will this improve the net income?

ii. Will this decrease in variable costs allow the division to achieve its target profit?

d. Apex is considering an aggressive advertising campaign strategy to differentiate its product from its competitors. The division does not expect volume to be affected, but it hopes to gain more control over pricing. If Apex has to spend $105,000 next year to advertise and its variable costs continue to be $1.25 per unit, what is price increase per unit to reach their target profit.