Integrative Case 5-80 (Algo) Cost Estimation, CVP Analysis, and Decision Making (LO51,3,5,6) Luke Corporation produces a variety of products, each within its own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.40 per case, has not had the market success that managers expected, and the company is considering dropping Bubbs. The product-line income statement for the past 12 months follows: All products at Luke recelve an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a percentoge of revenue. Data on corporate costs and revenues for the past two years follow: Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given, Mr. Andre provides you with the following data on product costs for Bubbs: Required: a. Bunk Stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporate allocation (and would not affect corporate costs). What is the minimum price Mr. Andre can offer Bunk without reducing profit any further? b. How mony coses of Bubbs does Luke have to sell in order to break even on the product? c. Suppose Luke has a requirement that all products hove to earn 5 percent of sales (ofter tax and corporate allocations) or they will be dropped. How mony coses of Bubbs does Mr. Andre need to sell to avold seeing Bubbs dropped? d. Assume all costs and prices will be the some in the next year. If Luke drops Bubbs, how much will Luke's profits increase or decrease? Assume that fixed production costs con be avoided if Bubbs is dropped. Complete this question by entering your answers in the tabs below. Bunk Stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporate allocation (and would not affect corporate costs). What is the minimum price Mr. Andre can offer Bunk without reducing profit any further? Note: Round your answer to 2 decimal places. (1.e., 32.21) Integrative Case 5-80 (Algo) Cost Estimation, CVP Analysis, and Decision Making (LO51,3,5,6) Luke Corporation produces a variety of products, each within its own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.40 per case, has not had the market success that managers expected, and the company is considering dropping Bubbs. The product-line income statement for the past 12 months follows: All products at Luke recelve an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a percentoge of revenue. Data on corporate costs and revenues for the past two years follow: Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given, Mr. Andre provides you with the following data on product costs for Bubbs: Required: a. Bunk Stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporate allocation (and would not affect corporate costs). What is the minimum price Mr. Andre can offer Bunk without reducing profit any further? b. How mony coses of Bubbs does Luke have to sell in order to break even on the product? c. Suppose Luke has a requirement that all products hove to earn 5 percent of sales (ofter tax and corporate allocations) or they will be dropped. How mony coses of Bubbs does Mr. Andre need to sell to avold seeing Bubbs dropped? d. Assume all costs and prices will be the some in the next year. If Luke drops Bubbs, how much will Luke's profits increase or decrease? Assume that fixed production costs con be avoided if Bubbs is dropped. Complete this question by entering your answers in the tabs below. Bunk Stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporate allocation (and would not affect corporate costs). What is the minimum price Mr. Andre can offer Bunk without reducing profit any further? Note: Round your answer to 2 decimal places. (1.e., 32.21)
