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Problem 8-8 Performing a Comprehensive CVP Analysis (LO2 - CC5, 6) The Central Valley Company is a manufacturing firm that produces and sells a single
Problem 8-8 Performing a Comprehensive CVP Analysis (LO2 - CC5, 6) The Central Valley Company is a manufacturing firm that produces and sells a single product. The company's revenues and expenses for the last four months are given below Central Valley Company Comparative Income Statement ril 6,300 May March 6,800 June Sales in units Sales revenue Less: Cost of goods sold 9,600 $788,800 $730,800 $922,200 $1,113,600 567,936 7,950 418,700 394,632479,544 $370,100 $336,168 $442,656 545,664 Gross margin Less: Operating Expenses Shipping expense Advertising expense Salaries and commissions Insurance expense Amortization expense $ 65,100 97,000 166,200 18,000 51,000 97,000 134,000 18,000 51,000 52,400 $ 68,600 97,000 170,500 18,000 51,000 62,000 97,000 164,500 18,000 51,000 Total operating expenses $397,300 $352,400 $405,100 392,500 Net income $ (27,200) $(16,232) $ 37,556 $ 153,164 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.) Cost of goods sold Shipping Salaries & commission- per unit per unit per unit 2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 88,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.) Break-even sales units Annual profit (88,000 units) 3. Calculate the change in profit if the selling price were reduced by $13.5 each and annual sales were to increase by 8,600 units. Decrease in loss 4. Determine the change in profit if the company were to increase advertising by $118,000 and if this were to increase sales by 8,600 units. Incremental profit
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