Howard industries inc., operating at full capacity, sold 64,000 units at a price of $45 per unit during the current year. Its in come statement is as follows: Sales ....... Cost of goods sold ... Gross profit... Expenses: Selling expenses.. Administrative expenses Total expenses... Income from operations. $2,880,000 1,400,000 $1.480,000 $400,000 387.500 787.500 692.500 The division of costs between variable and fixed is as follows: Fixed Variable 75% 60% 80% Cost of goods sold Selling expenses Administrative expenses 25% 40% 20% Management is considering a plant expansion program for the following year that will permit an increase of $90,000 in yearly sales. The expansion will increase fixed costs by $212,500 but will not affect the relationship between sales and variable costs. Sales volume has been dropping at Mumford Industries. During this time, however, the Shipping Department manager has been under severe financial constraints. The manager knows that most of the Shipping Department's effort is related to pulling inventory from the warehouse for each order and performing the paperwork. The paperwork involves preparing shipping documents for each order. Thus, the pulling and paperwork effort associated with each sales order is essentially the same, regardless of the size of the order. The Shipping Department manager has discussed the financial situation with senior management. Senior management has responded by pointing out that because sales volume has been dropping, the amount of work in the Shipping Department also should be dropping. Thus, senior management told the Shipping Department manager that costs should be decreasing in the department. The Shipping Department manager prepared the following information: Sales Volume per Order 400 390 Month January February March April May June July August Sales Volume $472.000 475,800 456,950 425,000 464,750 421,200 414,000 430,700 Number of Customer Orders 1,180 1,220 1.235 1.250 1,430 1,350 1,380 1,475 370 340 325 292 Given this information, how would you respond to senior management? Howard industries inc., operating at full capacity, sold 64,000 units at a price of $45 per unit during the current year. Its in come statement is as follows: Sales ....... Cost of goods sold ... Gross profit... Expenses: Selling expenses.. Administrative expenses Total expenses... Income from operations. $2,880,000 1,400,000 $1.480,000 $400,000 387.500 787.500 692.500 The division of costs between variable and fixed is as follows: Fixed Variable 75% 60% 80% Cost of goods sold Selling expenses Administrative expenses 25% 40% 20% Management is considering a plant expansion program for the following year that will permit an increase of $90,000 in yearly sales. The expansion will increase fixed costs by $212,500 but will not affect the relationship between sales and variable costs. Sales volume has been dropping at Mumford Industries. During this time, however, the Shipping Department manager has been under severe financial constraints. The manager knows that most of the Shipping Department's effort is related to pulling inventory from the warehouse for each order and performing the paperwork. The paperwork involves preparing shipping documents for each order. Thus, the pulling and paperwork effort associated with each sales order is essentially the same, regardless of the size of the order. The Shipping Department manager has discussed the financial situation with senior management. Senior management has responded by pointing out that because sales volume has been dropping, the amount of work in the Shipping Department also should be dropping. Thus, senior management told the Shipping Department manager that costs should be decreasing in the department. The Shipping Department manager prepared the following information: Sales Volume per Order 400 390 Month January February March April May June July August Sales Volume $472.000 475,800 456,950 425,000 464,750 421,200 414,000 430,700 Number of Customer Orders 1,180 1,220 1.235 1.250 1,430 1,350 1,380 1,475 370 340 325 292 Given this information, how would you respond to senior management