"Assignment Instructions: Anderson Metals manufactures and sells #3 steel rebar that is used in the construction of slabs and driveways. The steel bar not only strengthens the finished concrete product, but it also has unique properties such that its temperature related expansion and contraction matches that of concrete. The product is manufactured and sold in 20' long ""sticks."" The product is generally produced and sold to match customer demand, and there is not a significant amount of finished goods inventory at any point in time. Summary information for 2021 is below. The data can be found on the ""problem"" worksheet. On the ""worksheet"" tab, prepare the contribution margin income statements so that you can answer the questions. Place your answer in the bold outlined cells. An income statement must be prepared for each scenario!

Sales were $35,000,000, consisting of 10,000,000 sticks.

Total variable costs were $20,000,000.

Total fixed costs were $12,000,000.

Net income was $3,000,000.

The general economic conditions appear to be deteriorating heading into 2022, and there is some concern about a reduction in sales volume. The following questions should each be answered independent of one another. DO NOT ANSWER THE QUESTIONS ON THE PROBLEM WORKSHEET. USE THE WORKSHEET TAB TO ANSWER THE QUESTIONS in the bold cells. An income statement must be presented for each scenario to receive credit!

(a) What is the company's break-even point in "sticks?"

(b) 1) What would be their net income or net loss if volume is reduced by 25%? 2) Can the company sustain a 25% reduction in total volume, and remain profitable? Answer both questions.

(c) The company's sole shareholder, Doug Anderson, generally lives off of dividends paid by the business.The business typically declares and pays a dividend equal to $150,000 for Doug's normal living expenses. Doug is demanding a $100,000 increase in dividends for 2022. What total sales volume must Anderson Metals produce in 2022 to accomodate the increase in dividends andmaintain the same net income?

(d) If total volume is expected to decrease by 10%, and the company wishes to continue to produce a $3,000,000 net income by raising the per unit selling price, 1) what revised per stick price must be imposed? 2) Will this strategy necessarily work? Answer both questions. Justify your answer to the second question. A "Yes" or "No" answer will not recieve credit.

(e) If the company expects a drop in raw material prices to reduce total variable costs to $1.75 per stick, but all other revenue and cost factors to be unaffected, what will be the revised break-even point in sales and units?

Hint: All questions are weighted equally. There are two questions in part B and part D. Make sure you answer all questions to maximize points.

Hint: Question #2 in part D is a marketing question. The accountants in part D will say "raise the price", but how would you react if you were the marketing expert on the management team?

Worksheet:

(a)

Volume

Unit

Total

Sales

Variable Costs

Contribution Margin

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Fixed Costs

Net Income

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Use the income statement you prepared in (a) above to answer the question: What is the company's breakeven point in sticks?

(b)

Use the income statement you prepared in (b) above to answer the question: What would be their net income or net loss if volume is reduced by 25%?

Use the income statement you prepared in (b) above to answer the question: Can the company sustain a 25% reduction in total volume, and remain profitable?

(c)

Use the income statement you prepared in (c) above to answer the question: What total sales volume must Anderson Metals produce in 2022 to accomodate the increase

in dividends and maintain the same net income?

(d)

Use the income statement you prepared in (d) above to answer the question: what revised per stick price must be imposed?

Use the income statement you prepared in (d) above to answer the question: Will this strategy necessarily work?

(e)

Use the income statement you prepared in (e) above to answer the question: what will be the revised break-even point in units?

Use the income statement you prepared in (e) above to answer the question: what will be the revised break-even point in sales dollars?

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