Chef Marco's Choice Inc. case question #2:

UIC pruuuut me WILI UIC ICUESI! Q. 2. Prepare the budgeted 2007 income statement for Premium Grade Ovenware that the production, quality, and product managers considered when they discussed the first option available to them. a. Under that option, shipment would be delayed and about one third of the year's sales of 6,000,000 units would be lost. b. Product would be sold at the 10% price reduction but produced under the old cost structure for six months (variable production costs of $5.55 per unit). After the six months the variable cost savings of 35% would be achieved. C. Assume that recycling the current production would add $500,000 to the fixed production costs originally budgeted for 2007. In addition, the product line will incur an additional $2,000,000 in design engineering to solve the problem within a 6-month period (this will involve the use of overtime and consultants). d. Other cost items would stay as originally budgeted for 2007. What would the product line's profit be under this alternative? What would the return on sales for the product line be? EXHIBIT ONE Chef Marco's Choice, Inc. Premium Grade Ovenware Product Income Statement For the years ended December 31, 2002-2006 2005 2004 2006 $ 78,599,808 2003 2002 Sales $ 86,184,000 $ 81,874,800 5,458,320 $75,600,000 Sales in units 5,239,987 $ 67,500,000 4,5*00,000 Cost of Goods Sold Variable Fixed 29,081,929 27,865,240 $ 21,652,639 31,112,424 23,221,033 $ 27,541,343 31,026,240 21,701,900 $ 33,455,860 27,972,000 19,729,000 $ 27,899,000 24,975,000 18,100,000 $ 24,425,000 Gross Profit Attributable costs Marketing 5,894,986 2,517,537 Other (primarily fixed) 6,140,610 2,502,522 5,774,328 2,317,150 5,140,800 2,106,500 4,758,750 1,915,000 Product line profit before G&A allocation $ 13,240,117 Return on Sales $ 18,898,211 23.08% 16.84% $25,364,382 29.43% $ 20,651,700 27.32% $17,751,250 26.30%