Operational information Part 3 The owners continued their review of operations, focusing next on the Calgary Region which was organized similarly to the Penticton Region and produced and sold the same product line as the Penticton Region. The revenues and expenses for the last four months for this product line in the Calgary Region are presented I below May 6,600 $831,600 432,432 399,168 June 7,800 $982,800 501 228 481,572 Dynamadics - Calgary Region Comparative Monthly Income Statements March April Sales in units 5,900 5,400 Sales Revenue $743,400 $680,400 Less: Cost of Goods sold 394,850 367416 Gross Margin 348,550 312,984 Less: Operating Expenses Shipping 63,300 54,200 Advertising 83,500 83,500 Salaries/Commissions 163,500 138,500 Insurance 13,500 13,500 Depreciation 46,500 46,500 Total operating expenses 370,300 336,200 Net income S121.750) S[23,216) 66,800 83,500 166,000 13,500 46.500 376 300 $22.868 66,500 83,500 176,000 13,500 46,500 386.000 $95.572 The manager of operations at the Calgary region provided the following cost information for each of the mixed costs: Fixed Costs Variable Costs Cost of goods sold Shipping Salaries/Commissions $66,300 $26.486 $54,086 $55.76 $5.13 $15.63 Requirement #3 (17 marks) The owners are grateful for the information provided by the Calgary region respecting the cost behaviours for this product line. Their focus now is on understanding the impact of a change in any of the factors that impact profits. They would like you to complete some cost-volume-profit (CVP) analysis Note: Use 2 decimal places for contribution margin (CM) and CM ratios. 1. What is the annual total fixed cost based on the information provided? (1 mark) 2. What is the annual break-even sales in units (assume that fixed costs are incurred uniformly throughout the year). (2 marks) 3. What Sales Revenues are required annually to break-even? (2 marks) 4. How many units need to be sold to achieve a target monthly profit of $85,000? (1 mark) 5. What profit will be realized if 75,000 units are sold during the year? (2 marks) 6. Create a CM income statement at 75,000 units annually including both total and per unit data. (3 marks) 7. The owners asked the Calgary Region to consider options to improve profitability based on the calculations from as above (at 75,000 units annually). Two proposals were submitted to the owner. They would like you to analyze each option and provide a recommendation with an explanation on which (if any) option should be implemented to improve profitability, Based on your calculations in S above, prepare a comparative CM income statement to demonstrate the change and impact to profits for both of the options. a) The operations manager has proposed that a reduction of $8.50 in the selling price per unit would Increase sales by 6,800 units. (3 marks) b) the sales manager has also considered options to improve profitability. She has proposed that an Increase in advertising of $109,000 annually would increase sales by 6,800 units
