answer section

data section

Worksheet Chart B D Fixed Variable $2.30 4.70 3.00 $225,000 0.75 97,000 47,500 16,200 0.25 92,000 12,300 15,000 $505,000 $11.00 120,000 $16.00 $250,000 A 5 Data Section 6 7 8 Production costs 9 Direct materials 10 Direct labor 11 Factory overhead 12 Selling expenses 13 Sales salaries & commissions 14 Advertising 15 Miscellaneous selling expense 16 General expenses 17 Office salaries 18 Supplies 19 Miscellaneous general expense 20 21 22 Projected unit sales 23 Selling price per unit 24 25 Target net income 26 27 Answer Section 28 29 Contribution margin per unit 30 Contribution margin ratio 31 32 Break-even point in units 33 Units needed to achieve target net income 34 35 Break-even point in dollars 36 Sales dollars needed to achieve target net income 37 38 Net income based on projected unit sales (cell C22) 39 40 41 42 43 44 45 46 47 48 49 50 51 FORMULA1 FORMULA2 FORMULA3 FORMULA4 FORMULA5 FORMULA6 FORMULAZ 52 LEARNING OBJECTIVES Develop a cost-volume-profit analysis model. Calculate contribution margin, contribution margin ratio, break-even point, and projected income. Determine the effect of changes in price, variable costs, and fixed costs. Interpret the information provided by cost-volume-profit charts. Alter the worksheet to include an income statement in contribution margin format. Create a profit/volume chart. PROBLEM DATA Poleski Manufacturing, which maintains the same level of inventory at the end of each year, provided the following information about expenses anticipated for next year: Fixed Variable Expenses Expenses (per unit sold) $ 2.30 4.70 $225,000 3.00 .75 Production costs: Direct materials Direct labor Factory overhead Selling expenses: Sales salaries and commissions Advertising Miscellaneous selling expense General expenses: Office salaries Supplies Miscellaneous general expense 97,000 47,500 16,200 .25 92,000 12,300 15,000 $505,000 $11.00 The selling price of Poleski's single product is $16. In recent years, profits have fallen and Poleski's management is now considering a number of alternatives. Poleski wants to have a net income next year of $250,000, but expects to sell only 120,000 units unless some changes are made. REQUIREMENT 1. The president of Poleski has asked you to calculate the company's projected net income (assuming 120,000 units are sold) and the sales needed to achieve the company's net income objective for next year. Also, compute Poleski's contribution margin per unit, contribution margin ratio, and break-even point for next year. The worksheet CVP has been provided to assist you. Note that the data from the problem have already been entered into the Data Section of the worksheet. 2. Open the file CVP from the website for this book at cengagebrain.com. Enter the formulas where indicated on the worksheet. Enter your name in cell A1. Save the solution as CVP2 and print the worksheet. Also print your formulas. Check figures: Break-even point in sales dollars (cell C35), $1,616,000; Net income (cell C38), $95,000. 3. Based on Poleski's current situation, witl it earn its target net income? If not, how many units need to be sold to achieve the target? Explain. WHAT-IF ANALYSIS 4. The president of Poleski would like to know the effect that each of the following suggestions for improving performance would have on contribution margin per unit, sales needed to break even, and projected net income for next year. Each change should be considered independently. Reset the Data Section to its original values after each suggestion is analyzed. Fill in the table following the suggestions with the results of your analysis. a. The president suggests cutting the product's price. Since the market is relatively sensitive to price, "...a 10% cut in price ought to generate a 30% increase in sales (to 156,000 units). How can you lose?" b. The sales manager feels that putting all sales personnel on straight commission would help. This would eliminate $77,000 in fixed sales salaries expense. Variable sales commissions would increase to $2.00 per unit. This move would also increase sales volume by 30%. c. Poleski's head of product engineering wants to redesign the package for the product. This will cut $1.00 per unit from direct materials and $0.50 per unit from direct labor, but will increase fixed factory overhead by $100,000 for additional depreciation on the new packaging machine. The package redesign would not affect sales volume. d. The firm's consumer marketing manager suggests undertaking a new advertising campaign on Facebook. This would cost $30,000 more than is currently planned for advertising but would be expected to increase sales volume by 30%