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Need answers with formulas Management is reviewing the profitability of the Company's four products and the potential effects of several proposals for varying the product
Need answers with formulas
Management is reviewing the profitability of the Company's four products and the potential effects of several proposals for varying the product mix. The following data is available for the analysis: | |||||
TOTALS | PRODUCT 1 | PRODUCT 2 | PRODUCT 3 | PRODUCT 4 | |
Revenue | $ 69,575 | $ 11,275 | $ 18,900 | $ 13,600 | $ 25,800 |
Cost of goods sold | 44,274 | 4,750 | 7,056 | 13,968 | 18,500 |
Gross profit | $ 25,301 | $ 6,525 | $ 11,844 | $ (368) | $ 7,300 |
Operating expenses | 12,012 | 1,990 | 2,976 | 2,826 | 4,220 |
Income before taxes | $ 13,289 | $ 4,535 | $ 8,868 | $ (3,194) | $ 3,080 |
Units sold | 1,100 | 1,350 | 1,700 | 2,150 | |
Sales price per unit | $ 10.25 | $ 14.00 | $ 8.00 | $ 12.00 | |
Variable cost of goods sold per unit | $ 3.00 | $ 2.75 | $ 5.75 | $ 7.00 | |
Variable operating expenses per unit | $ 1.10 | $ 1.30 | $ 1.00 | $ 1.10 | |
Each of the following proposals is to be considered independently. Consider only the product changes stated in each proposal; the activity of other products remains stable. Ignore income taxes. | |||||
Calculate the effect on total income if Product 3 is discontinued. | |||||
Item | Amount | ||||
Sales price | |||||
Variable costs | |||||
Unit contribution margin | |||||
Loss generated by sales | |||||
Calculate the effect on total income if Product 3 is discontinued and consequently a 200 unit decrease in the sales of Product 2 occurs. | |||||
Item | Amount | ||||
Income generated by discontinuing P3 | |||||
Product 2 UCM | |||||
200 unit decrease in Product 2 sales | |||||
Net decrease in total income | |||||
Calculate the effect on income if the price of Product 3 is increased by $1 with a 300 unit decrease in sales. | |||||
Item | Amount | ||||
UCM for Product 3 | |||||
Income generated by sales | |||||
Recovery of negative CM | |||||
Net effect on income | |||||
The production of Product 1 can be doubled by adding a second shift, but higher wages must be paid, increasing the variable cost of goods sold $1 per unit for these additional units. Calculate the effect on income if the additional units can be sold. | |||||
Item | Amount | ||||
Part of the plant in which Product 1 is produced can be easily adapted for the production of Product 4, but changes in quantities may make changes in sales prices advisable. Calculate the effect on income if production of Product 1 is reduced by 500 units (to be sold at $2 more per unit) and production of Product 4 is increased by 500 units (to be sold at $0.50 more per unit). | |||||
Item | Amount | ||||
New CM | |||||
Product 1 | |||||
Product 4 | |||||
Old CM | |||||
Product 1 | |||||
Product 4 | |||||
Net effect on income (New CM - Old CM) |
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