Budgeted profit, what-if analysis The Monteiro Manufacturing Corporation manufactures and sells folding umbrellas. The corporation's condensed income statement for the year ended December 31, 2006 follows: sales (2000,000 units) $1,000,000.00 Cost of goods sold $600,000.00 Gross Margin $400,000.00 Selling expenses $150,000.00 Administrative expenses $100,000.00 $250,000.00 Net profit (before income taxes) $150,000.00 Monteiro's budget committee has estimated the following changes for 2007: 30% Increase in # of units sold 20% increase in material cost/unit 15% increase in direct labor cost per unit 10% increase in variable indirect cost per unit 5% increase in indirect capacity-related costs 8% increase in selling expenses, arising solely from increased volum 6% increase in administrative expenses, reflecting anticipated higher wage and supply price levels. Any changes in adminstrative expenses caused solely by increased sales volume are considered immaterial. As inventory quantities remain fairly constant, the budget committee considered that for budget purposes any change in inventory valuation can be ignored. The composition of the cost of a unit of finished product during 2006 for materials, direct labor, and manufacturing support, respectively, was in the ratio of 3:2:1. In 2006, $40,000 of manufacturing support was for capacity-related fixed costs. No changes in production methods or credit policies were contemplated for 2007. a. Compute the unit sales price at which the Monteiro Manufacturing Corp must sell its umbrellas in 2007 in order to earn a budgeted profit of $200,000. b. Unhappy about the prospect of an increase in selling price, Monteiro's sales manager wants to know how many units must be sold at the old price to earn the $200,000 budgeted profit. Compute the number of units which must be sold at the old price to earn $200,000. c. Believing that the estimated increase in sales is overly optimistic, on of the company's directors wants to know what annual profit is likely if the selling price determined in (a) is adopted but the increase in sales volume is on 10%. Comput the budgeted profit in this case.

ACCT 5548 Assignment No. 4 - Question 10.66 Ian Sceles, A00323448 25-Mar-2011 Income Statement Ending December 31, 2006 (Given) Income Statement Ending December 31, 2007 (Given) Units Sales Cost of Goods Sold Gross Margin Selling Expenses Administrative Expenses Net profit (before taxes) Sales Materials Direct Labour Manufacturing variable Manufacturing fixed Units 200000 150000 100000 $1,000,000.00 $600,000.00 $400,000.00 $250,000.00 $150,000.00 Total expenses Cost per unit $1,000,000.00 $5.00 $280,000.00 $1.40 $186,666.67 $0.93 $93,333.33 $0.47 $40,000.00 Budgeted committee Sales Material Labour Indirect cost indirect capacity related costs Selling expenses Advertising expenses 260000 $1.68 $1.07 $0.51 $1,300,000.00 $436,800.00 $279,066.67 $133,466.67 $42,000.00 $162,000.00 $106,000.00 $140,666.67 Units to be sold to have a profit of $200,000 Sales = VE + FE + Profit Budgeted committee Sales Material Labour Indirect cost indirect capacity related costs Selling expenses Advertising expenses Sales Cost of Goods Sold Gross Margin Selling Expenses Administrative Expenses Net profit (before taxes) 2942307 220000 $0.17 $0.11 $0.05 $37,400.00 $24,200.00 $11,000.00 $42,000.00 $162,000.00 $106,000.00 $(382,600.00) Sales Materials Direct Labour Manufacturing variable Manufacturing fixed $310,000.00 260000 162000 106000 $1,166,000.00 $698,000.00 $468,000.00 $268,000.00 $200,000.00 Total expenses Cost per unit $1,166,000.00 $329,000.00 $219,333.33 $109,666.67 $40,000.00 $4.48 ANS $1.27 $0.84 $0.42 ACCT 5548 Assignment No. 4 - Question 10.66 Ian Sceles, A00323448 25-Mar-2011 Income Statement Ending December 31, 2006 (Given) Income Statement Ending December 31, 2007 (Given) Units Sales Cost of Goods Sold Gross Margin Selling Expenses Administrative Expenses Net profit (before taxes) Sales Materials Direct Labour Manufacturing variable Manufacturing fixed Units 200000 150000 100000 $1,000,000.00 $600,000.00 $400,000.00 $250,000.00 $150,000.00 Total expenses Cost per unit $1,000,000.00 $5.00 $280,000.00 $1.40 $186,666.67 $0.93 $93,333.33 $0.47 $40,000.00 Budgeted committee Sales Material Labour Indirect cost indirect capacity related costs Selling expenses Advertising expenses 260000 $1.68 $1.07 $0.51 $1,300,000.00 $436,800.00 $279,066.67 $133,466.67 $42,000.00 $162,000.00 $106,000.00 $140,666.67 Units to be sold to have a profit of $200,000 Sales = VE + FE + Profit Budgeted committee Sales Material Labour Indirect cost indirect capacity related costs Selling expenses Advertising expenses Sales Cost of Goods Sold Gross Margin Selling Expenses Administrative Expenses Net profit (before taxes) 2942307 220000 $0.17 $0.11 $0.05 $37,400.00 $24,200.00 $11,000.00 $42,000.00 $162,000.00 $106,000.00 $(382,600.00) Sales Materials Direct Labour Manufacturing variable Manufacturing fixed $310,000.00 260000 162000 106000 $1,166,000.00 $698,000.00 $468,000.00 $268,000.00 $200,000.00 Total expenses Cost per unit $1,166,000.00 $329,000.00 $219,333.33 $109,666.67 $40,000.00 $4.48 ANS $1.27 $0.84 $0.42 ACCT 5548 Assignment No. 4 - Question 10.66 Ian Sceles, A00323448 25-Mar-2011 Income Statement Ending December 31, 2006 (Given) Income Statement Ending December 31, 2007 (Given) Units Sales Cost of Goods Sold Gross Margin Selling Expenses Administrative Expenses Net profit (before taxes) Sales Materials Direct Labour Manufacturing variable Manufacturing fixed Units 200000 150000 100000 $1,000,000.00 $600,000.00 $400,000.00 $250,000.00 $150,000.00 Total expenses Cost per unit $1,000,000.00 $5.00 $280,000.00 $1.40 $186,666.67 $0.93 $93,333.33 $0.47 $40,000.00 Budgeted committee Sales Material Labour Indirect cost indirect capacity related costs Selling expenses Advertising expenses 260000 $1.68 $1.07 $0.51 $1,300,000.00 $436,800.00 $279,066.67 $133,466.67 $42,000.00 $162,000.00 $106,000.00 $140,666.67 Units to be sold to have a profit of $200,000 Sales = VE + FE + Profit Budgeted committee Sales Material Labour Indirect cost indirect capacity related costs Selling expenses Advertising expenses Sales Cost of Goods Sold Gross Margin Selling Expenses Administrative Expenses Net profit (before taxes) 2942307 220000 $0.17 $0.11 $0.05 $37,400.00 $24,200.00 $11,000.00 $42,000.00 $162,000.00 $106,000.00 $(382,600.00) Sales Materials Direct Labour Manufacturing variable Manufacturing fixed $310,000.00 260000 162000 106000 $1,166,000.00 $698,000.00 $468,000.00 $268,000.00 $200,000.00 Total expenses Cost per unit $1,166,000.00 $329,000.00 $219,333.33 $109,666.67 $40,000.00 $4.48 ANS $1.27 $0.84 $0.42