profit 7) Changing sales price: Marketing research indicates that TrueBeat Company can sell more units of its product if they lower their sales price by 10% per unit. Remember to treat this scenario as independent from the items considered in 6. a) Calculate the new (1) sales price and (ii) contribution margin per unit. i) new sales price 464.4 576 - 101.5 164.4 ii) CM per unit 2.95.4 964.5-169: 245.4 iii) What will the new Profit formula be? Profit Formula - (New sales price per unit- variable (ost)-heed cost. b) How many units will they need to sell to make the same operating income (NOI) as originally projected for year 4 (base assumption)? 43000 + 304000/295.4 1175 units apps. c) How many units will they need to sell to break-even at the new sales price? 304000/295.4 : 1029 units appres. d) If TrueBeat Company can sell 20% more units (2 times original units) with the decreased sales price, how much operating income will they make? 590,800 - 304,000 . 286.800 e) Conclusion: Using the information calculated above, should TrueBeat lower their sales price? Why or why not? Will their relevant range be an issue for this decision? Your answer should full to price if they estimate that their sales would not increase, because with a reduction of pries have to sell more units than usual to break even which is a virke factor 8) Increase Fixed Costs: TrueBeat's management is also considering purchasing additional advertising for $40,000. Marketing studies suggest that sales will increase by 200 units a year. Should the single is a huge burden to produce company purchase the additional advertising? Your answer should use complete sentences and mart but consible contain 30 to 50 words. Support your answer with calculations of at least 2 of the following items if they consell (a) Net Operating Income, (b) Break-even in units or dollars.(c) target sales in units or dollars to 2 times original maintain the same Net Income as originally assumed for year 4. You may also use other calculations writt hartly that you feel are relevant. Remember to treat this scenario as independent from the items considered bright ea in 6) and 7) True beat's management should ineux addikaal advertising selling expense as it will give more operating profit. Their profit is increased incences profit by $29.400. Not increased find cost Increased fired cost 304000/516-16987 units 344000/516-169 991 units 9) New Plant? Because TrucBeat's capacity is limited to 8,000 units in their current production facility, management would like to explore the impact of building a new production facility. The company is considering a new production facility and equipment that will decrease their variable expenses by 30% but increase fixed expenses by 50%. TrucBcat still plans to produce and sell the same number of units in Year 4 (base). The new plant will give them a relevant range of 5,000 to 12,000 units. a) If the new production facility is built, what would be the company's new (1) contribution margin per unit, (ii) fixed expenses and (iii) the new profit formula? Complete the table below. i) New CM per unit ii) New Fixed expenses iii) New profit formula boreduce coding Under New production facility New Break-even New Year 4 6,000 Units Sales Revenue NOI -0- b) Assume TrueBeat sells the same units as planned for Year 4 in the new plant, calculate the new margin of safety in (i) units) (ii) dollars and (iii) percent. i) MoS units ii) MoS dollars iii) MoS percent Has margin of safety improved or declined? Explain/comment in 10 to 30 words. c) Calculate the degree of operating leverage. Has operating leverage improved or declined from the "base" calculation in 9)? Discuss in 10 to 30 words. d) Conclusion: If you were a member of top management, would you have been in favor of constructing the new plant? Explain in 30 to 50 words [The following information applies to the questions displayed below. Listed here are the total costs associated with the production of 1,000 drum sets manufactured by TrueBeat. The drum sets sell for $516 each. Costs 1. Plastic for casing-$19,000 2. Wages of assembly workers $90,000 3. Property taxes on factory-$7,000 4. Accounting staff salaries--$33,000 5. Drum stands (1,000 stands purchased)-$35,000 6. Rent cost of equipment for sales staff-$36,000 7. Upper management salaries-$170,000 8. Annual flat fee for factory maintenance service-$16,000 9. Sales commissions--$25 per unit 10. Machinery depreciation, straight-line-$42,000 5) Base scenario calculations: Using the Profit Formula calculated in 5) above, calculate the following assuming TrueBeat produces and sells 6,000 units as their "base" scenario Sales Revenue Net Operating Income Contribution Margin Contribution Margin Contribution Margin percent Break-even in units Break-even in dollars Margin of safety in units Margin of safety percent Margin of safety in dollars Degree of Operating Leverage Looking at changes: TrueBeat is not confident their expenses will hold in year 4. Management wants to examine the potential impact of the following situations. Assume cach situation independent of one another. The Profit Formula and 6,000 units produced and sold for Year 4 as your "base" scenario. 5) Base scenario calculations: Using the Profit Formula calculated in 5) above, calculate the following assuming Trucleat produces and sells 6,000 units as their "hase scenario Sales Revenue Net Operating Income Contribution Margin Contribution Margin Contribution Margin percent Break-even in units Break-even in dollars Margin of safety in units Margin of safety percent Margin of safety in dollars Degree of Operating Leverage Looking at changes: TrueBeat is not confident their expenses will hold in year 4. Management wants to cxamine the potential impact of the following situations. Assume cach situation independent of one another. The Profit Formula and 6,000 units produced and sold for Year 4 as your "bas cenario 6) Increase to costs: The production manager is anticipating inflation and other incrcase that will result in total variable expenses increasing by 20%. a) What will the new profit formula be? b) What will the CM ratio and Break-Even point in units be with the labor increase? Note - Requirement asks for CM ratio, NOT contribution margin in dollars or contribution per unit. c) If they produce and sell the same number of units for Year 4, what will their new Net Operating Income, NOI, be? d) How many units will TrueBeat need to sell to maintain the same operating income as originally planned for Year 4? c) Assume TrueBeat Company need to make a minimum profit of $1,000,000 to keep its creditors and investors happy. What minimum sales price will they need to charge if they produce and sell 6,000 units? Hint: Remember that CM Sales price - Variable expenses. 1) Conclusion: Use your calculation above, should TrueBeat be concemed about future costs increases? Make sure your answer uses complete sentences and includes 30 to 50 words to support your answer. b) Using absorption costing, prepare an absorption costing income statements for Truccat for Ycars 2, 3 and 4. TrueBeat Income Statement(Absorption Costing) For Years ending December 31 Year 2 Year 3 Year 4 Sales revenus Cost of Goods Sold Gross Margin S&A expenses Net Operating Income c) Do you think TrueBeat's decision to maintain drum sets inventory from year 2 until they are sold in year 3 was a good decision? Use complete sentences and 30 to 50 words in your answer. 4) TrueBeat expects production and sales levels to remain constant from year 4 onward at 6,000 drum sets. Write a Profit Formula for TrucBeat's operations using variable costing. NOI - QxCM unit FC, where Q represents the number of units produced and sold, CM unit is the contribution margin per unit and FC is the total fixed expenses. a) Profit formula b) Complete chart assuming the same number of units will be produced and sold. Sales Revenue Variable Expenses Fixed Expenses Profit/NOI Units produced/sold 4.000 5.000 6.000 7.000 c) Prepare a Cost-Volume-Profit graph for TrucBeat Company (you can use the graph at the end of the assignment or create your own) i) Label both the x and y axis using appropriate increments. Dollar values should be used for they axis and number of units for the x axis. ii) Plot the Fixed Expense line. Label it. iii) Plot the Sales Revenue line and label it. iv) Plot the Total Expense line and label it. v) Indicate the Break-even Point on the graph and label it. vi) Shade and label the portion of the graph that indicates the company's positive profit. 3 1) Summarize the information for TrueBeat from 09 & 10 of HW1.1 assuming they produce and sell 1,000 drum sets during the year. Remember to use 2 decimals for "per unit" values. True Beat - Summarized connect given data Average Cost per Total Unit Dollars Direct materials $ 19 Direct labor $ 90 Variable manufacturing overhead $1 35 Fixed manufacturing overhead $ 7000+ 16000 + 42,00 Fixed selling & administrative expense $ 239,000 33,000+ 7600 170,000 Variable selling & administrative expense $ 25 Sales price per unit 516 2) Assumc, due to the significant success of the drum sets, TrueBeat has obtained a contract to provide drum sets to a national merchandising chain. This contract is expected to increase TrueBeat's sales over the next 3 years. Current operations have a relevant range of 500 to 1,800 drum sets. TrueBeat's anticipates selling 3,000 units in Year 2, 5,000 units in Year 3 and 6,000 units in Year 4. Making the following cost changes, TrueBeat will increase their relevant range of production to between 4,000 and 8,000 drum sets. This significant increase to production will stair-step some of their costs. Specifically, the company will have to purchase additional equipment that will increase their machinery depreciation expense by 50% (Fixed overhead. The new equipment will allow TrueBeat to produce up to 10,000 drum sets a year. With increased production levels, TrucBeat will need to pay shift premium to assembly workers such that the average Direct labor will increase by $18 a unit. Additionally, production supervisor will be hired for $120,000 (fixed overhead). Additionally, the company providing factory maintenance services has agreed to a new contract. The new contract will include a fixed component (overhead) equal to half of the original flat fee and a variable component (overhead) that will be $0.25 per assembly wage dollars The company needs to increase its sales staff. Rather than paying their sales staff commission only, TrueBeat will pay sales staff a flat salary (fixed S&A) equal to twice the amount paid in Year 1 and a reduced commission per drum set equal to 50% of the previous commission rate. . 1 All other costs are considered consistent and within relevant range for production of 4,000 to 8,000 units. Use the information provided above to adjust amounts from the table in 1). Include the adjusted amounts in the table below. TrueBeat adjusted summarized data for production 4,000 to 8,000 units Adjust summarized data Average Cost Total per Unit Dollars Direct materials 19 Direct labor Variable manufacturing overhead Fixed manufacturing overhead 100.000 7000 + 5000 63,0 + 110,000 Fixed selling & administrative expense $ 2751200 170,000 33,00 72,010 Variable selling & administrative expense 12.5 Sales price per unit SUS SL6 $ Note: The table above may be submitted early for verification. Upload it to the "submission" drop box on D2L, email or text a photo or PDF to Teri and she will look at it before you continue with the project. 3) TrucBcat's management will need to produce 4,000 units in Years 2 and 3 (to meet relevant range) and 6,000 units in Year 4. However, they anticipate selling only 3,000 units in Year 2 but 5,000 units in Years 3 and 6,000 units in Year 4. They will have to carry inventory produced in Year 2 until it is sold in Year 3. Note: Net Operating Income, or NOI, for this course is essentially Income before interest or tax expense and represents the operationally controlled components of Net Income. a) Using variable costing and contribution margin income statement format, prepare predictive income statements for Years 2, 3 and 4 below. TrueBeat Income Statement (Variable Costing) For Years ending December 31 Year 2 Year 3 Year 4 Sales revenue Variable production costs Variable S&A expenses Contribution Margin Fixed Overhead Fixed S&A expenses Net Operating Income profit 7) Changing sales price: Marketing research indicates that TrueBeat Company can sell more units of its product if they lower their sales price by 10% per unit. Remember to treat this scenario as independent from the items considered in 6. a) Calculate the new (1) sales price and (ii) contribution margin per unit. i) new sales price 464.4 576 - 101.5 164.4 ii) CM per unit 2.95.4 964.5-169: 245.4 iii) What will the new Profit formula be? Profit Formula - (New sales price per unit- variable (ost)-heed cost. b) How many units will they need to sell to make the same operating income (NOI) as originally projected for year 4 (base assumption)? 43000 + 304000/295.4 1175 units apps. c) How many units will they need to sell to break-even at the new sales price? 304000/295.4 : 1029 units appres. d) If TrueBeat Company can sell 20% more units (2 times original units) with the decreased sales price, how much operating income will they make? 590,800 - 304,000 . 286.800 e) Conclusion: Using the information calculated above, should TrueBeat lower their sales price? Why or why not? Will their relevant range be an issue for this decision? Your answer should full to price if they estimate that their sales would not increase, because with a reduction of pries have to sell more units than usual to break even which is a virke factor 8) Increase Fixed Costs: TrueBeat's management is also considering purchasing additional advertising for $40,000. Marketing studies suggest that sales will increase by 200 units a year. Should the single is a huge burden to produce company purchase the additional advertising? Your answer should use complete sentences and mart but consible contain 30 to 50 words. Support your answer with calculations of at least 2 of the following items if they consell (a) Net Operating Income, (b) Break-even in units or dollars.(c) target sales in units or dollars to 2 times original maintain the same Net Income as originally assumed for year 4. You may also use other calculations writt hartly that you feel are relevant. Remember to treat this scenario as independent from the items considered bright ea in 6) and 7) True beat's management should ineux addikaal advertising selling expense as it will give more operating profit. Their profit is increased incences profit by $29.400. Not increased find cost Increased fired cost 304000/516-16987 units 344000/516-169 991 units 9) New Plant? Because TrucBeat's capacity is limited to 8,000 units in their current production facility, management would like to explore the impact of building a new production facility. The company is considering a new production facility and equipment that will decrease their variable expenses by 30% but increase fixed expenses by 50%. TrucBcat still plans to produce and sell the same number of units in Year 4 (base). The new plant will give them a relevant range of 5,000 to 12,000 units. a) If the new production facility is built, what would be the company's new (1) contribution margin per unit, (ii) fixed expenses and (iii) the new profit formula? Complete the table below. i) New CM per unit ii) New Fixed expenses iii) New profit formula boreduce coding Under New production facility New Break-even New Year 4 6,000 Units Sales Revenue NOI -0- b) Assume TrueBeat sells the same units as planned for Year 4 in the new plant, calculate the new margin of safety in (i) units) (ii) dollars and (iii) percent. i) MoS units ii) MoS dollars iii) MoS percent Has margin of safety improved or declined? Explain/comment in 10 to 30 words. c) Calculate the degree of operating leverage. Has operating leverage improved or declined from the "base" calculation in 9)? Discuss in 10 to 30 words. d) Conclusion: If you were a member of top management, would you have been in favor of constructing the new plant? Explain in 30 to 50 words [The following information applies to the questions displayed below. Listed here are the total costs associated with the production of 1,000 drum sets manufactured by TrueBeat. The drum sets sell for $516 each. Costs 1. Plastic for casing-$19,000 2. Wages of assembly workers $90,000 3. Property taxes on factory-$7,000 4. Accounting staff salaries--$33,000 5. Drum stands (1,000 stands purchased)-$35,000 6. Rent cost of equipment for sales staff-$36,000 7. Upper management salaries-$170,000 8. Annual flat fee for factory maintenance service-$16,000 9. Sales commissions--$25 per unit 10. Machinery depreciation, straight-line-$42,000 5) Base scenario calculations: Using the Profit Formula calculated in 5) above, calculate the following assuming TrueBeat produces and sells 6,000 units as their "base" scenario Sales Revenue Net Operating Income Contribution Margin Contribution Margin Contribution Margin percent Break-even in units Break-even in dollars Margin of safety in units Margin of safety percent Margin of safety in dollars Degree of Operating Leverage Looking at changes: TrueBeat is not confident their expenses will hold in year 4. Management wants to examine the potential impact of the following situations. Assume cach situation independent of one another. The Profit Formula and 6,000 units produced and sold for Year 4 as your "base" scenario. 5) Base scenario calculations: Using the Profit Formula calculated in 5) above, calculate the following assuming Trucleat produces and sells 6,000 units as their "hase scenario Sales Revenue Net Operating Income Contribution Margin Contribution Margin Contribution Margin percent Break-even in units Break-even in dollars Margin of safety in units Margin of safety percent Margin of safety in dollars Degree of Operating Leverage Looking at changes: TrueBeat is not confident their expenses will hold in year 4. Management wants to cxamine the potential impact of the following situations. Assume cach situation independent of one another. The Profit Formula and 6,000 units produced and sold for Year 4 as your "bas cenario 6) Increase to costs: The production manager is anticipating inflation and other incrcase that will result in total variable expenses increasing by 20%. a) What will the new profit formula be? b) What will the CM ratio and Break-Even point in units be with the labor increase? Note - Requirement asks for CM ratio, NOT contribution margin in dollars or contribution per unit. c) If they produce and sell the same number of units for Year 4, what will their new Net Operating Income, NOI, be? d) How many units will TrueBeat need to sell to maintain the same operating income as originally planned for Year 4? c) Assume TrueBeat Company need to make a minimum profit of $1,000,000 to keep its creditors and investors happy. What minimum sales price will they need to charge if they produce and sell 6,000 units? Hint: Remember that CM Sales price - Variable expenses. 1) Conclusion: Use your calculation above, should TrueBeat be concemed about future costs increases? Make sure your answer uses complete sentences and includes 30 to 50 words to support your answer. b) Using absorption costing, prepare an absorption costing income statements for Truccat for Ycars 2, 3 and 4. TrueBeat Income Statement(Absorption Costing) For Years ending December 31 Year 2 Year 3 Year 4 Sales revenus Cost of Goods Sold Gross Margin S&A expenses Net Operating Income c) Do you think TrueBeat's decision to maintain drum sets inventory from year 2 until they are sold in year 3 was a good decision? Use complete sentences and 30 to 50 words in your answer. 4) TrueBeat expects production and sales levels to remain constant from year 4 onward at 6,000 drum sets. Write a Profit Formula for TrucBeat's operations using variable costing. NOI - QxCM unit FC, where Q represents the number of units produced and sold, CM unit is the contribution margin per unit and FC is the total fixed expenses. a) Profit formula b) Complete chart assuming the same number of units will be produced and sold. Sales Revenue Variable Expenses Fixed Expenses Profit/NOI Units produced/sold 4.000 5.000 6.000 7.000 c) Prepare a Cost-Volume-Profit graph for TrucBeat Company (you can use the graph at the end of the assignment or create your own) i) Label both the x and y axis using appropriate increments. Dollar values should be used for they axis and number of units for the x axis. ii) Plot the Fixed Expense line. Label it. iii) Plot the Sales Revenue line and label it. iv) Plot the Total Expense line and label it. v) Indicate the Break-even Point on the graph and label it. vi) Shade and label the portion of the graph that indicates the company's positive profit. 3 1) Summarize the information for TrueBeat from 09 & 10 of HW1.1 assuming they produce and sell 1,000 drum sets during the year. Remember to use 2 decimals for "per unit" values. True Beat - Summarized connect given data Average Cost per Total Unit Dollars Direct materials $ 19 Direct labor $ 90 Variable manufacturing overhead $1 35 Fixed manufacturing overhead $ 7000+ 16000 + 42,00 Fixed selling & administrative expense $ 239,000 33,000+ 7600 170,000 Variable selling & administrative expense $ 25 Sales price per unit 516 2) Assumc, due to the significant success of the drum sets, TrueBeat has obtained a contract to provide drum sets to a national merchandising chain. This contract is expected to increase TrueBeat's sales over the next 3 years. Current operations have a relevant range of 500 to 1,800 drum sets. TrueBeat's anticipates selling 3,000 units in Year 2, 5,000 units in Year 3 and 6,000 units in Year 4. Making the following cost changes, TrueBeat will increase their relevant range of production to between 4,000 and 8,000 drum sets. This significant increase to production will stair-step some of their costs. Specifically, the company will have to purchase additional equipment that will increase their machinery depreciation expense by 50% (Fixed overhead. The new equipment will allow TrueBeat to produce up to 10,000 drum sets a year. With increased production levels, TrucBeat will need to pay shift premium to assembly workers such that the average Direct labor will increase by $18 a unit. Additionally, production supervisor will be hired for $120,000 (fixed overhead). Additionally, the company providing factory maintenance services has agreed to a new contract. The new contract will include a fixed component (overhead) equal to half of the original flat fee and a variable component (overhead) that will be $0.25 per assembly wage dollars The company needs to increase its sales staff. Rather than paying their sales staff commission only, TrueBeat will pay sales staff a flat salary (fixed S&A) equal to twice the amount paid in Year 1 and a reduced commission per drum set equal to 50% of the previous commission rate. . 1 All other costs are considered consistent and within relevant range for production of 4,000 to 8,000 units. Use the information provided above to adjust amounts from the table in 1). Include the adjusted amounts in the table below. TrueBeat adjusted summarized data for production 4,000 to 8,000 units Adjust summarized data Average Cost Total per Unit Dollars Direct materials 19 Direct labor Variable manufacturing overhead Fixed manufacturing overhead 100.000 7000 + 5000 63,0 + 110,000 Fixed selling & administrative expense $ 2751200 170,000 33,00 72,010 Variable selling & administrative expense 12.5 Sales price per unit SUS SL6 $ Note: The table above may be submitted early for verification. Upload it to the "submission" drop box on D2L, email or text a photo or PDF to Teri and she will look at it before you continue with the project. 3) TrucBcat's management will need to produce 4,000 units in Years 2 and 3 (to meet relevant range) and 6,000 units in Year 4. However, they anticipate selling only 3,000 units in Year 2 but 5,000 units in Years 3 and 6,000 units in Year 4. They will have to carry inventory produced in Year 2 until it is sold in Year 3. Note: Net Operating Income, or NOI, for this course is essentially Income before interest or tax expense and represents the operationally controlled components of Net Income. a) Using variable costing and contribution margin income statement format, prepare predictive income statements for Years 2, 3 and 4 below. TrueBeat Income Statement (Variable Costing) For Years ending December 31 Year 2 Year 3 Year 4 Sales revenue Variable production costs Variable S&A expenses Contribution Margin Fixed Overhead Fixed S&A expenses Net Operating Income
