Assumptions for 2016 (in case you find the picture hard to read)
1. The company wil hire one additional sales manager at a base salary of $90,000
2. R&D will be increased by $600,000 over 2015
3. Unit sales will increase by 60 percent over 2015
Please show calculations and notes.
CASE In preparing for the meeting, Warren assembled the fo. MICRO IMAGE lowing information based on results for 2014 INC. TECHNOLOGY Units produced icrolmage Technology Inc. produces miniature digital 80.000 215 color cameras that can be attached to endoscopes and Selling price other medical devices. The cameras sell for $215 per unit Manufacturing costs and are disposed of after each use. For 2014, the company's Direct material costs S 1,280,000 first full year of operation, the company had sales of 80,000 Direct labor costs 1,200,000 units and a net loss of $9,810,000, as follows: variable manufacturing overhead: Equipment maintenance Microl mage Technology, Inc. Inspection costs 400,000 ncome Statement Miscellaneous variable manufacturing For the Year Ended December 31,2014 320,000 overhead Fixed manufacturing overhead $17,200,000 Less cost of goods sold 1,800,000 (1,160,000 Gross profit (oss) 5,000,000 Less selling and Supervisory salaries 4,500,000 administrative expenses: Miscellaneous fixed manufacturing $3,750,000 Selling expense overhead Administrative expense 4900,000 8650.000 S18,360,000 Net loss Selling expenses Variable selling expense: The company is closely held, with six major inventors Early 280,000 Shipping n the first quarter of 2015, Warren Logan, company CFO, Commissions s preparing to meet with them to present profitability 120,000 estimates for the coming two years. He expected the Fixed selling expense: meeting to be somewhat hostile. Two days before, he had received an email from one of the investors, Sanjay Patel: Miscellaneous fixed 650,000 ng expense Warren 3,750,000 a net loss but not this big. And I certainly Administrative expenses (all fixed) didn't expect a negative gross profit! It looks like the 2,700,000 Research and development more we sell, the more we'l lose. hope you come to Administrative salaries not related the investor meeting next week with some explana 1,300,000 tions and some better numbers Miscellaneous administrative expense 900,000 SP Required Assumptions for 2015 1. The company will hire two additional sales managersat a. Recast the full costing income statement for 2014 into a a base salary of $90,000 each. variable costing format.Does it appear,as Sanjay Patel con- 2. R&D will be cut by $1,100,000 tends that the more the company sells, the more it loses? 3. Unit sales will increase b. Based on the previous information, calculate sales in by 30 percent. dollars and units needed to break even in 2015. Assumptions for 2016 Warren Logan, CFO, has developed assumptions that he additional sales manager at 1. The company will hire one believes are reasonable for 2015 and 2016. Using these a base salary of S90,000. assumptions, prepare budgeted income statements for 2015 and 2016 using the variable costing method. Are the 2. R&D will be increased by $600,000 over 2015. increase by 60 percent over 2015. 3. Unit sales major investors likely to find forecasted profits encouraging
