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Hi, I'm having a really hard time understanding my mistakes on this calculations. Can you help. Thanks, Determine the effect of each of the following
Hi, I'm having a really hard time understanding my mistakes on this calculations. Can you help. Thanks,
Determine the effect of each of the following independent situations on monthly profit. Note: Do not use negative signs with your answers. a. Purchasing automated assembly equipment, which should reduce direct labor costs by $4 per unit and increase variable overhead costs by $1 per unit and fixed factory overhead by $18,000 per month. Increaseof ~/ 5 36,000 ~/ b. Reducing the selling price by $5 per unit. This should increase the monthly sales by 4,500 units At this higher volume, additional equipment and salaried personnel would be required, This will increase fixed factory overhead by $6,000 per month and fixed selling and administrative costs by $2,700 per month. Increaseof ~/ 35 99,300 X c. Buying rather than manufacturing a component ofAnderson's final product. This will increase direct materials costs by $5 per unit. However, direct labor will decline $3 per unit, variable factory overhead will decline $1 per unit, and fixed factory overhead will decline $37,500 per month. Increaseof ~/ $ 19,500 ~/ d. Increasing the unit selling price by $5 per unit. This action should result in a 3,000 unit decrease in monthly sales. Decrease of ~/ $ 72,000 X e. Combining alternatives (a) and (d). Decrease of c V $ 219,000 x Multiple Changes in Profit Plans In an attempt to improve profit performance, Anderson Company's management is considering a number of alternative actions. An October contribution income statement for Anderson Company follows. ANDERSON COMPANY Contribution Income Statement For Month of October Sales ( 18,000 units x $75) $1,350,000 Less variable costs Direct materials ( 18,000 units x $10) $180,000 Direct labor ( 18,000 units x $10) 180,000 Variable factory overhead ( 18,000 units x $4) 72,000 Selling and administrative ( 18,000 units x $2) 36,000 (468,000) Contribution margin ( 18,000 units x $49) 882,000 Less fixed costs Factory overhead 540,000 Selling and administrative 360,000 (900,000) Net income (loss) $(18,000) Required Determine the effect of each of the following independent situations on monthly profit. Note: Do not use negative signs with your answers. a. Purchasing automated assembly equipment, which should reduce direct labor costs by $4 per unit and increase variable overhead costs by $1 per unit and fixed factory overhead by $18,000 per month. Increase of $ 36,000 b. Reducing the selling price by $5 per unit. This should increase the monthly sales by 4,500 units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed factory overhead by $6,000 per month and fixed selling and administrative costs by $2,700 per month. Increase of * $ 99,300 XANDERSON COMPANY Contribution Income Statement Units 18000 For Month of October Price 75 Price Total Sales (18,000 units x $75) 75 $ 1,350,000.00 Less variable costs Direct materials (18,000 units x $10) 10 $ 180,000.00 Direct Labor (18,000 units x $75) 10 $ 180,000.00 Variable factory overhead (18,000 units x $4) 4 5 72,000.00 Selling and administrative (18,000 units x $2) 2 S 36,000.00 $ 468,000.00 Contribution markin (18,000 units x $49) 49 882,000.00 Less fixed costs Factory overhead 540000 Selling and administrative -360000 $ (900,000.00) Net Income (loss) S (18,000.00) Reduction in direct labor costs A Unit Price Units Reduction in labor cost ($4 per unit X12000) $ 4.00 $ 72,000.00 18000 Increase in variable overhead costs (1per unit) (1.00) $ (18,000.00) Increase in factory overhead (18,000.00) Net 5 36,000.00 B Proposed selling price 75-5 70 per unit Proposed sales in units 18000+4500 22500 units Price Total Sales (12,000 units x $75) 70 $ 1,575,000.00 Less variable costs Direct materials (12,000 units x $10) 10 $ 225,000.00 Direct Labor (12,000 units x $75) 10 $ 225,000.00 Variable factory overhead (12,000 units x $4) 4 $ 90,000.00 Selling and administrative (12,000 units x $2) 2 $ 45,000.00 $ 585,000.00 Contribution margin (12,000 units x $49) 14 990,000.00 Contribution Margin Existing 882,000.00 Incremental Contribution Margin 108,000.00 Incremental Fixed Costs 6000 Selling and administrative 2700 $ 8,700.00) Net increase in profit S 9,300.00Unit Total lncreaselnclirectmaterials S (5.00) S (90,000.00) 18,000.00 Decrase DL 5 3.00 S 54,000.00 DecreaseinVariableFO S 1.00 S 18,000.00 Decrease in Fixed F0 5 37,500.00 Net Increase in -rofit S 19,500.00 Price Sales Variable Cost perunit S 80. 00 15,000.00 3 26.00 Sales (80X10,000) 5 1,200,000. 00 Less variable costs ($26 perunit x .' S 390,000.00 CM proposed 3 810,000. 00 CM Existing '5 882,000. 00 Incremental Contribution Margin S (72,000.00) ANDERSON COMPANY Contribution Income Statement Units 15000 For Month of October Price so Price Total Sales (12,000 units x $75) 80 S 1,200,000.00 Less variable costs Direct materials (12,000 units x $10) 10 S 150,000.00 Direct Labor (12,000 units x $75) 6 S 90,000.00 Variable factory overhead (12,000 units x $4) 5 S 75,000.00 Selling and administrative (12,000 units x $2) 2 S 30,000.00 5 345,000.00 Contribution margin (12,000 units x $49) 57 S 855,000.00 Less fixed costs -18000 Factory overhead 360000 7 Selling and administrative -240000 5 (618,000.00) Net Income (loss) proposed (a) S 237,000.00 Net income (loss) existing (b) S (18,000.00) Net increase (decrease) in profit (a)-(b) 219,000.00Step by Step Solution
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