Introduction Water Play, Inc. is ready to launch the sale of the underwater vehicle, Shark Scout,...

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Introduction Water Play, Inc. is ready to launch the sale of the underwater vehicle, Shark Scout, developed by the company's engineers; this is a new product and has no competitors at this point. The accountants have been asked to do financial planning for the first year of operation. The information used in the planning has been developed by marketing, engineering, production operations, procurement, human resources, accounting and managers in several other functional areas of the company. The key information is the forecast of product and period costs based on an estimate of 72,000 units to be produced and sold. The first part of the analysis begins with classifying the company's costs as product or period, direct or indirect, and variable or fixed; selling and administrative fixed costs are then further identified as discretionary or committed fixed costs. Next is the preparation of a contribution format income statement so that cost-volume-profit analysis can be completed. Cost-volume-profit analysis will look at the company's cost structure, its break-even point, margin of safety and operating leverage; this will allow the company's management to evaluate the company's ability to generate profits, assess how quickly profits will increase or decrease with changes in sales, and the level of risk presented by its cost structure. Introduction Water Play, Inc. is ready to launch the sale of the underwater vehicle, Shark Scout, developed by the company's engineers; this is a new product and has no competitors at this point. The accountants have been asked to do financial planning for the first year of operation. The information used in the planning has been developed by marketing, engineering, production operations, procurement, human resources, accounting and managers in several other functional areas of the company. The key information is the forecast of product and period costs based on an estimate of 72,000 units to be produced and sold. The first part of the analysis begins with classifying the company's costs as product or period, direct or indirect, and variable or fixed; selling and administrative fixed costs are then further identified as discretionary or committed fixed costs. Next is the preparation of a contribution format income statement so that cost-volume-profit analysis can be completed. Cost-volume-profit analysis will look at the company's cost structure, its break-even point, margin of safety and operating leverage; this will allow the company's management to evaluate the company's ability to generate profits, assess how quickly profits will increase or decrease with changes in sales, and the level of risk presented by its cost structure.