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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 units x $ $
Less variable costs
Direct materials units x $ $
Direct labor units x $
Variable factory overhead units x $
Selling and administrative units x $
Contribution margin units x $
Less fixed costs
Factory overhead
Selling and administrative
Net income loss $
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 $ per unit and increase variable overhead costs by $ per unit and fixed factory overhead by $ per month.
Increase of
b Reducing the selling price by $ per unit. This should increase the monthly sales by units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed factory overhead by $ per month and fixed selling and administrative costs by $ per month.
Answer
Increase of
c Buying rather than manufacturing a component of Andersons final product. This will increase direct materials costs by $ per unit. However, direct labor will decline $ per unit, variable factory overhead will decline $ per unit, and fixed factory overhead will decline $ per month.
Answer
Increase
d Increasing the unit selling price by $ per unit. This action should result in a unit decrease in monthly sales.
Answer
Decrease
e Combining alternatives a and d
Answer
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 $ per unit and increase variable overhead costs by $ per unit and fixed factory overhead by $ per month.
b Reducing the selling price by $ per unit. This should increase the monthly sales by units. At this higher volume, additional equipment and salaried personnel would be required. This will increase fixed
factory overhead by $ per month and fixed selling and administrative costs by $ per month.
c Buying rather than manufacturing a component of Anderson's final product. This will increase direct materials costs by $ per unit. However, direct labor will decline $ per unit, variable factory overhead will
decline $ per unit, and fixed factory overhead will decline $ per month.
Increase of
d Increasing the unit selling price by $ per unit. This action should result in a unit decrease in monthly sales.
e Combining alternatives a and d
$
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