Question
Profit decisions are important to the Martins. These decisions not only arise from understanding the market, pricing policies and margins the managers need to understand
Profit decisions are important to the Martins. These decisions not only arise from understanding the market, pricing policies and margins the managers need to understand the tools and elements they need to consider as they target either profit levels or their ability to manage the elements of the profit calculation. For example, if CompuTech is operating at a loss or below BREAK EVEN then understanding how they might be able to manage costs, or volumes to generate profits becomes very important. BREAKEVEN analysis can help the Martins and CompuTech decide on any of the following: how many units they need to sell, what price should they sell at (and compared to what the market will bear), what levels their fixed costs are at, what product or service should a company promote more or less. Assuming the following: (i) the sales price for each CompuTech product sold is $50; (ii) each product sold costs $25 in Raw Material components; and the business Fixed Cost is as determined in your Dec 31st, 2021 Income Statement.
Q5: If the Sheridan student could impact unit sales by 20% growth, would their hiring be justified? Explain.
Q6: With the following information for 2022 prepare a pro-forma Income Statement for the year ending December 31, 2022, and then, calculate CompuTechs (a) income before taxes, (b) contribution margin and (c) PV ratio.
RM Purchases: $205,000
Freight In: 4,000
Sales Salaries: 60,000
Commissions: 3,000
Travel: 3,000
Advertising: 5,000
Admin Salaries: 38,000
Revenue: 420,000
Depreciation: 40,000
Office leasing: 7,000
Finance Costs: 14,000
Income Taxes: 13,000
Q7: Assuming that the price per unit and the variable cost per unit have stayed the same as in calculations for 2021, what is the new BE in units for CompuTech in 2022? How does this compare to the BE in units for the previous year?
Q8: If the total market in the CompuTech market area had experienced a shrinking in units during the year (of 10%) should the Martins be concerned? Explain.
By 2023 the Martins are projecting considerable improvement in their business. Using the following accounts prepare the Income Statement for the period ending December 31, 2022.
RM Purchases: $406,000
Sales Salaries: 80,000
Commissions: 5,000
Travel: 5,000
Advertising: 10,000
Depreciation: 80,000
Admin Salaries: 60,000
Office Leasing: 10,000
Finance Costs: 30,000
Income Taxes: 42,000
DEC 31, 2021 INCOME STATEMENT:
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