Question
Business Problem Sultan Corporation had sales of $1,875,000 in 2022 on 75,000 units. Variable costs amounted to $1,125,000, and fixed costs amounted to $500,000. A
Business Problem Sultan Corporation had sales of $1,875,000 in 2022 on 75,000 units. Variable costs amounted to $1,125,000, and fixed costs amounted to $500,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $3.00). However, processing the new raw material will increase fixed operating costs by $125,000. Management believes that 66.67% of the decline in variable costs per unit should be passed on to customers through a sales price reduction. The marketing department expects that this sales price reduction will result in a 4% increase in the number of units sold. Instructions: 1) Prepare a CVP income statement for 2022 under two scenarios: (a) Assuming that the changes have not been made. (b) Assuming that changes are made as described. 2) Prepare a CVP income statement if the variable costs increased by 15% per unit and fixed costs increased by $50,000. The price per unit increased by $3. These changes resulted in a 10% decrease in units sold. 3) An export suggests that if Sultan Corporation implements advertising promotion, the sales will increase to 75,000 units, but the variable costs per unit will increase by $0.50. (Using CVP income statement in part 2) Do you recommend the implementation of the advertising program?
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