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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

In an attempt to improve profit performance, Anderson Companys 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 (13,200 units x $75) $990,000
Less variable costs
Direct materials (13,200 units x $10) $132,000
Direct labor (13,200 units x $10)132,000
Variable factory overhead (13,200 units x $4)52,800
Selling and administrative (13,200 units x $2)26,400(343,200)
Contribution margin (13,200 units x $49)646,800
Less fixed costs
Factory overhead 396,000
Selling and administrative 264,000(660,000)
Net income (loss) $(13,200)
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 $13,200 per month.
Increase of
b. Reducing the selling price by $5 per unit. This should increase the monthly sales by 3,300 units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed factory overhead by $4,400 per month and fixed selling and administrative costs by $1,980 per month.
Answer
Increase of
c. Buying rather than manufacturing a component of Andersons 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 $27,500 per month.
Answer
Increase
d. Increasing the unit selling price by $5 per unit. This action should result in a 2,200 unit decrease in monthly sales.
Answer
Decrease
e. Combining alternatives (a) and (d).
Answer 9
Decrease 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 $13,200 per month.
b. Reducing the selling price by $5 per unit. This should increase the monthly sales by 3,300 units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed
factory overhead by $4,400 per month and fixed selling and administrative costs by $1,980 per month.
c. Buying rather than manufacturing a component of Anderson'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 $27,500 per month.
Increase of
61,000
d. Increasing the unit selling price by $5 per unit. This action should result in a 2,200 unit decrease in monthly sales.
q
e. Combining alternatives (a) and (d).
$
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