Question
ABC Industries is a multi product company with several manufacturing plants.The Clinton Plant manufactures and distributes two household cleaning and polishing compounds -- regular and
ABC Industries is a multi product company with several manufacturing plants.The Clinton Plant manufactures and distributes two household cleaning and polishing compounds -- regular and heavy duty -- under the Cleen-Brite label.
The forecasted operating results for the first 6 months of the year when 100,000 cases of each compound are expected to be manufactured and sold are presented in the following statement.
Cleen-Bite Compounds - Clinton Plant
Forecasted Results of Operations
For the 6-Month Period Ending June 30
(000 omitted)
RegularHeavy DutyTotal
SalesP2,000P3,000P5,000
Cost of sales1,6001,9003,500
Gross profitP400P1,100P1,500
Selling and adm. expenses
VariableP400P700P1,100
Fixed240360600
Total S & A expensesP640P1,060P1,700
Income (loss) before taxP(240)P40P (200)
*The fixed selling and administrative expenses are allocated between the two products on the basis of peso sales volume on the internal reports.
The regular compound sold for P20 a case and the heavy duty sold for P30 a case during the first 6 months.The manufacturing costs by case of product are presented in the schedule below.Each product is manufactured on a separate production line.Annual normal manufacturing capacity is 200,000 cases of each product.However, the plant is capable of producing 250,000 cases of regular compound and 350,000 cases of heavy duty compound annually.
Cost per Case
RegularHeavy Duty
Raw MaterialsP7P8
Direct labor44
Variable manufacturing overhead12
Fixed manufacturing overhead*45
Total manufacturing costP16P 19
Variable selling and Adm. costP4P7
*Depreciation charges are 50% of the fixed manufacturing overhead of each line.
The schedule below reflects the consensus of top management regarding the price/volume alternatives for the Cleen-Brite products for the last 6 months of the year.They are essentially the same alternatives management had during the first 6 months of the year.
Regular CompoundHeavy Duty Compound
AlternativeSalesAlternativeSales
PricesVolumePricesVolume
(per case)(in cases)(per case)(in case)
P18120,000P25175,000
20100,00027140,000
2190,00030100,000
2280,0003255,000
2350,0003535,000
Top management believes the loss for the first 6 months reflects a tight profit margin caused by intense competition.Management also believes that many companies will be forced out of this market by next year and profits should improve
5.What is the variable cost per case for the regular compound?
6.What price should ABC select to maximize sales revenues from the regular compound?
7.What price should ABC select for the regular compound?
8.What is the contribution margin per case for the heavy duty compound at P27 selling price?
9.At the sales price of P25, what is the expected net income (loss) before taxes from sales of the heavy-duty compound assuming the peso sales of regular compound equaled the sales of heavy duty compound?
10.What price should ABC select for the heavy duty compound?
11.What is the total contribution margin for the regular compound if ABC sells 50,000 units at P23 per unit?
12.What is the total variable cost for the heavy duty compound if ABC sells 35,000 units at P35 per unit?
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