Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I do not understand question number three. However, I belive the answers to questions number 1 and 2 are already on chegg I just need

I do not understand question number three. However, I belive the answers to questions number 1 and 2 are already on chegg I just need clarification with how to do question number 3. PLEASE HELP

Q. 1. Prepare a budgeted income statement for Premium Grade Ovenware for 2007 if the engineers redesign efforts had worked as originally planned. Use these assumptions:

First quarter sales of 1,500,000 units will be achieved each quarter in 2007.

The selling price for 2007 will remain 10% below the price charged from 2002-2006, and there were no sales price increases during the 2002-2006 period.

Variable cost of goods sold averaged about $5.55 per unit of ovenware from 2002-2006.

Variable production costs will be reduced by 35% due to the new design.

The fixed cost of production in 2006 contained one-time, increased costs (about $4,000,000) for the design changes. For 2007, fixed costs are expected to be about 3.5% higher than 2005.

Marketing costs contain both fixed and variable elements, however, it is budgeted based on spending 7% of expected sales revenue.

Other fixed costs are expected to increase about 2.5% over 2006.

Would the product manager have met his profit target of 25% return on sales in 2007 for the product line with the redesign?

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 years sales of 6,000,000 units would be lost.

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.

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).

Other cost items would stay as originally budgeted for 2007.

What would the product lines profit be under this alternative? What would the return on sales for the product line be?

Q. 3. The production, quality and product managers considered their second option to be producing and selling flawed units for 6 months while engineers corrected the problem. Under this option, the company would not disclose the problem and hope for the best. Perhaps none of the product claims would involve any injury; only product replacement would be required at a cost of about $12 per unit.

a. Adjust the 2007 budget for an assumed defect rate of .25% for 6 months production. (Note this is a defect rate in addition to the normal rate faced in each year, 2002-2006, which is already accounted for in marketing cost.)

b. Adjust the fixed production cost for 2007 for 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).

What would the budgeted profit and return on sales be if option two were selected?

If the engineers redesign efforts had worked originally, the Budgeted Income Statement for Premium Grade Overnware in 2007 would have been:

a.)

Expected Sales Revenue

1,500,000 4 Quarters($15-10%)

$81,000,000

b.)

Variable cost of goods sold

1,500,000 4 Quarters($5.55-35%)

$21,450,000

c.)

Fixed cost of production

($23,221,033 + 3.5%)

$24,033,769

d.)

Gross Profit

$81,000,000 - ($21,450,000 + $24,033,769)

$35,516,231

e.)

Attributable Costs

$35,516,231 - $27,265,756

$8,250,475

i.)

Marketing Costs

$81,000,000 x 7%

$5,670,000

ii.)

Other Fixed Costs

$2,517,537 + 2.5%

$2,580,475

f.)

Product line profit before G&A allocation

[35,516,231 - 8,250,475)

$27,265,756

g.)

Return on sales

($27,265,756 / $81,000,000) x 100

33.66%

Since the budgeted profit target is 33.66%, the product manager met his profit target of 25% return on sales in 2007 for the product line with the redesign.

The production, quality, and product managers used this budgeted income statement to consider the first option that was given:

2)

2007

Sales

$ 54,270,000

Sales Units

4,020,000

COGS

Variable

14,502,150

Fixed

26,533,769.16

Gross Profit

$13,234,080.84

Attributable Cost

Market

5,798,900

Other

580,475.425

Prod. Line Profit

Before G&A allocation

$6,854,705.415

Return of Sales

12.63%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting An International Introduction

Authors: David Alexander, Christopher Nobe

6th Edition

1292102993, 978-1292102993

More Books

Students also viewed these Accounting questions

Question

x-3+1, x23 Let f(x) = -*+3, * Answered: 1 week ago

Answered: 1 week ago

Question

highlight how to collect and record interview and diary based data;

Answered: 1 week ago

Question

clarify the relationship between research, theory and practice;

Answered: 1 week ago

Question

evaluate the quality of your data;

Answered: 1 week ago