Question
Item1 10points Time Remaining 1 hour 29 minutes 43 seconds 01:29:43 Item 1 Time Remaining 1 hour 29 minutes 43 seconds 01:29:43 The Central Valley
Item1
10points
Time Remaining 1 hour 29 minutes 43 seconds
01:29:43
Item 1
Time Remaining 1 hour 29 minutes 43 seconds
01:29:43
The Central Valley Company is a manufacturing firm that produces and sells a single product. The companys revenues and expenses for the last four months are given below.
Central Valley Company Comparative Income Statement | ||||||||||||
March | April | May | June | |||||||||
Sales in units | 6,200 | 5,700 | 7,050 | 8,400 | ||||||||
Sales revenue | $ | 762,600 | $ | 701,100 | $ | 867,150 | $ | 1,033,200 | ||||
Less: Cost of goods sold | 402,800 | 378,594 | 450,918 | 526,932 | ||||||||
Gross margin | $ | 359,800 | $ | 322,506 | $ | 416,232 | $ | 506,268 | ||||
Less: Operating expenses | ||||||||||||
Shipping expense | $ | 63,900 | $ | 53,600 | $ | 67,400 | $ | 65,000 | ||||
Advertising expense | 88,000 | 88,000 | 88,000 | 88,000 | ||||||||
Salaries and commissions | 164,400 | 137,000 | 167,500 | 171,500 | ||||||||
Insurance expense | 15,000 | 15,000 | 15,000 | 15,000 | ||||||||
Amortization expense | 48,000 | 48,000 | 48,000 | 48,000 | ||||||||
Total operating expenses | $ | 379,300 | $ | 341,600 | $ | 385,900 | $ | 387,500 | ||||
Net income | $ | (19,500 | ) | $ | (19,094 | ) | $ | 30,332 | $ | 118,768 | ||
Required:
1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.)
2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 79,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.)
3. Calculate the change in profit if the selling price were reduced by $10.50 each and annual sales were to increase by 7,400 units.
4. Determine the change in profit if the company were to increase advertising by $112,000 and if this were to increase sales by 7,400 units.
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