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Based on the results of your CVP Analysis (the first tab following this one), summarize your recommendations to management regarding its contemplated supplemental March 20X1 advertising campaign described below. Limit the length of your response to 100 words.

Instructions: Using the information about Western Manufacturing Company provided below, complete the following two tabs in this MS Excel Workbook: - Cost-volume-profit (CVP) Analysis prepared in February 20X1 regarding planned operations for month of March 20X1 - Contribution Margin (Full-Absorption vs. Variable Costing Method) Analysis prepared in April 20X1 for completed month of March 20X1 The background paper, Management Accounting Concepts, provides useful guidance for completing this assignment. Based on the results of your CVP Analysis (the first tab following this one), summarize your recommendations to management regarding its contemplated supplemental March 20X1 advertising campaign described below. Limit the length of your response to 100 words. It will take another 4,000 units or $560,000 in sales to cover the cost of the advertising campaign. The campaign is expected to increase sales by 7.5% which would be 100,000 x .075 = 7,500 units so the advertising campaign should pay for itself and increase profits by the 3,500 units above those needed to cover the cost of the campaign. Based on the results of your Contribution Margin Analysis (the second tab following this one), explain why the reported results using the fullabsorption method and variable costing method differ from each other. (In formulating your response, it may be helpful to review pages 20 22 of the background paper, Management Accounting Concepts, including the illustration on those pages.) Limit the length of your response to 100 words. The results reported using the full-absorption method and variable costing method differ from each other due to treatment of Fixed costs. Under absorption costing method, Fixed costs are treated as manufacturing costs and become part of per unit cost manufactured. hence the ending inventory will carry the part of fixed manufacturing cost, to the next period. Therefore the cost of goods produced will be lesser. This will result in higher profit for the current period. Under variable costing method, Fixed cost are not treated as manufacturing costs and but deducted from the contribution margin as a period cost. Hence the ending inventory will not carry the part of fixed manufacturing cost, to the next period. Therefore, the cost of goods produced will be higher. This will result in lover profit for the current period. Company information: Number of units of the company's only product: BudgetedMar. 20X1 Actual Included in inventory on hand at March 1, 20X1 NA 8,000 units Manufactured during month ended March 31, 20X1 NA 102,000 units ? 105,000 units NA units Sales for month of March 20X1 Budgeted total production and sales for fiscal year ended (FYE) Dec. 31, 20X1 Per-unit information: Average selling price 1,200,000 BudgetedMar. 20X1 Actual $ 140.00 $ 140.00 $ 31.50 $ 32.00 Variable manufacturing costs Direct materials (DM) Direct labor (DL) 26.50 25.50 Manufacturing overhead (MOH) (Var. MOH) 37.00 38.50 Variable selling and administrative (S&A) cost (Var. S&A) Fixed costs: $ 15.00 $ 14.50 Budget 20X1 (see Note Mar. 1) 20X1 Actual Manufacturing overhead (MOH) costs (Fxd MOH) $ 8,400,000 $ 714,000 Selling and administrative (S&A) costs (Fxd S&A) $ 9,000,000 $ 770,000 Research and development (R&D) costs $ 6,000,000 $ 510,000 Other information: Budgeted net income for month ended March 31, 20X1 $ Company's projected combined effective tax rate for FY 20X1 Cost of contemplated supplemental advertising campaign for March 20X1 630,000 40.0% (i.e., 0.40) $ 120,000 (see Note 2) Note 1 - Management's monthly budget for each category of fixed costs listed is 1/12 of the annual budget amount Note 2 - Management estimates that the supplemental advertising, if conducted, would generate a 7.5% increase in sales (units and dollars), compared to budget, for the month of March 20X1. The facilitator will grade this assignment, assigning up to 100 points for it as follows: Maximum Earned Cost-Volume-Profit (CVP) Analysis - Accuracy and completeness of: Amounts and other information input into MS Excel worksheet and related computations 25 points Conclusions expressed as a result of the completed CVP Analysis 25 points Amounts and other information input into MS Excel worksheet and related computations 25 points Conclusions expressed as a result of the completed Contribution Margin Analysis 25 points Contribution Margin Analysis - Accuracy and completeness of: Total points 100 - Instructions: Use the information in the first worksheet tab (Instructions and company information) to complete the analysis in this tab. For each of a. through d., below, show all computations in good form and label properly all amounts presented. a. Compute Western Manufacturing Company's budgeted break-even sales - number of units and dollars - for the month of March 20X1. To do so, use the Cost-Volume-Profit model, SP x Q - VC x Q = FC, described and illustrated on page 15 of the background paper, Management Accounting Concepts. Average selling price $ 140.00 Variable manufacturing costs $ 110.50 Contribution Margin- Per Unit $ 29.50 Fixed Costs $ 1,950,000.00 Breakever point in Units/month $ 66,101.69 Breakeven point in dollars/month $ 9,254,237.29 Variable manufacturing costs Direct Matarials (DM) $ 32.00 Direct Labor (DL) $ 25.50 Manufacturing Overhead (Var. MOH) $ 38.50 Var. S & A costs $ 14.50 Fixed Costs Manufacturing Overhead Fixed Costs $ 700,000 S&A Fixed Costs $ 750,000 Research and Development (R&D) Costs $ 500,000 b. Compute the company's required sales - number of units and dollars - necessary to achieve its budgeted net income for the month of March 20X1. To do so, use the Cost-Volume-Profit model, Targeted NI = [(SP x Q) - (VC x Q) - FC] x (1 - t), described and illustrated on page 16 of the background paper, Management Accounting Concepts. Targeted net income = [(SPxQ)-(VCxQ) - FC] x (1-t) $ 630,000 = [140Q - 110.5Q - 1,950,000] x (1-0.40) $ 630,000 = [29.5Q x (1-0.40)] - [1,950,000 x (1-0.40)] $ 630,000 = $ 1,800,000 = 17.70 -1,170,000.00 17.70Q Sales required in units : Q = 101,694.92 Units Sales required in dollars = 14,237,288 c. Compute the company's operating leverage ratio using budgeted operating results for the month of March 20X1. As described on page 15 of the background paper, Management Accounting Concepts, the operating leverage ratio is computed as: CM ratio / Net margin ratio, where CM ratio = Unit CM / SP, and Net margin ratio = Net income / Sales. CM Ratio = Unit CM/SP Net Margin Ratio = Net Income/Sales Operating Leverage Ratio = CM ratio/Net margin ratio 21.07% 4.43% 476.19% d. Management is contemplating the expanded advertising expenditures for the month of March 20X1 (see Company Information in previous tab). Assuming management does not change the product's selling price, compute the additional amount of sales - units and dollars - necessary to achieve the company's budgeted net income for the month, if it proceeds with the additional advertising campaign. It may be helpful to review the illustration on pages 17 - 18, ("Estimating Impact of Contemplated Management Decisions") of the background paper, Management Accounting Concepts. Advertising Cost Contribution Margin - per unit Sales required in units Sales required in dollars 677,250.00 120,000.00 29.50 4,067.80 4,068 569,491.53 569,492 Western Manufacturing Company Income Statement For the month ended March 31, 20X1 Full-Absorption (or, Absorption Costing) Method (U.S. GAAP) Units Sales (or, Revenue) 105,000 Per unit $ Variable Costing Method (Contribution Margin Format) Total 140.00 SP $ 14,700,000 Units Sales (or, Revenue) 105,000 Per unit Total $ 140.00 SP $ 14,700,000 $ $ Variable expenses Cost of goods sold (COGS) Inventory, March 1 Variable cost of goods sold 8,000 Cost of goods manufactured 102,000 Cost of goods available for sale 110,000 Less: Inventory, March 31 Cost of goods sold $ 102.00 (1) 103.00 (1) 5,000 103.00 (1) 105,000 $ 816,000 Inventory, March 1 8,000 10,506,000 Variable manufacturing costs 102,000 11,322,000 Cost of goods available for sale 110,000 515,000 10,807,000 Less: Inventory, March 31 96.00 (1) 105,000 Variable selling and admin. expenses 105,000 96.00 (1) 3,893,000 480,000 10,072,000 14.50 (2) 1,522,500 11,594,500 Total variable expenses Gross profit 760,000 9,792,000 10,552,000 5,000 Variable cost of goods sold 95.00 (1) [Provide proper label for this subtotal] 3,105,500 Fixed expenses Selling and admin. expenses (2) Research and development expenses 2,292,500 510,000 Fixed manufacturing overhead 714,000 Selling and admin. expenses 770,000 Research and development expenses 510,000 Income before taxes (4) 1,090,500 Income before taxes (4) 1,111,500 Income taxes (5) 436,200 Income taxes (5) 444,600 654,300 Net income Net income (1) Unit costs of production: 666,900 (3) Variable S&A costs include sales commissions and customer shipping Variable: Direct materials $ 25.50 Manufacturing overhead (MOH) costs 38.50 Total variable cost per unit Fixed MOH costs (4) Reconciliation of difference in income before taxes between the two methods: 32.00 Direct labor Units 96.00 1,200,000 7.00 Total (fully absorbed) cost per unit Per unit Income before taxes - full absorption Increase (decrease) in inventory (units) 8,400,000 103.00 Fixed MOH cost per unit 1,090,500 (3,000) $ 7.00 (1) Fixed MOH cost expensed (deferred) under full absorption method (2) Selling and administrative expenses Variable Fixed Total Income before taxes - variable costing 105,000 $ 14.50 (3) 1,522,500 770,000 2,292,500 (5) Company's combined (U.S. federal and state) effective income tax rate is 40 percent 21,000 1,111,500