Hi,

I need the solution to the attached case study in managerial accounting.

Case 1 - MANAGEMENT ACCOUNTING WEEK 7 Newcastle Division Topic: CVP, and Target profits A meeting of senior managers at the Newcastle Division has been called to discuss the pricing strategy for a new product. Part of the discussion will focus on the problem of forecasting sales volume. In the last year a significant number of new products have failed to achieve their forecast sales volumes. The financial accountant has already stated that the profit for the year-end will be lower than budget and the main reason for this is the disappointing sales of new products. Details of pricing stategies The first strategy is to set a selling price of 170 with annual fixed costs at 22,000,000. A number of managers are in favour of this strategy as they believe it is important to reduce costs. The second strategy is too have a much higher expenditure on advertising and promotions and set a selling price of 190. With the higher selling price the annual fixed costs would increase to 27,000,000. The marketing department are very clear that greater expenditure on advertising and promotions is essential for this product. Estimated sales is 168,000 units Variable costs per unit The managers estimate that the variable cost per unit is 35. Target Profits A profit greater than 4,000,000 is the required return for the new product. If the product cannot achieve a profit greater than 4,000,000 it is very unlikely that managers will accept it. Questions Question 1 (a) For both pricing strategies calculate: (i) A profit greater than 1,500,000 (ii) A profit of 0 (break-even) (iii) A profit greater than 4,000,000 Question 2 Assuming that the target profit for the new product is 4,000,000 discuss whether your answer to (1) helps managers choose between the two pricing strategies