! Required information Problem 7-39 Leverage; Analysis of Operating Change (LO 7-1, 7-4, 7-8) [The following information applies to the questions displayed below.] Consolidated Industries is studying the addition of a new valve to its product line. The valve would be used by manufacturers of irrigation equipment. The company anticipates starting with a relatively low sales volume and then boosting demand over the next several years. A new salesperson must be hired because Consolidated's current sales force is working at capacity. Two compensation plans are under consideration: Plan A: An annual salary of $22,000 plus a 10% commission based on gross dollar sales. Plan B: An annual salary of $66,000 and no commission. Consolidated Industries will purchase the valve for $50 and sell it for $80. Anticipated demand during the first year is 6,000 units. (In the following requirements, ignore income taxes.) Problem 7-39 Part 1 Required: 1. Compute the break-even point in units for Plan A and Plan B. Break-Even Point Plan A units Plan B units Problem 7-39 Leverage; Analysis of Operating Change (LO 7-1, 7-4, 7-8) (The following information applies to the questions displayed below.] Consolidated Industries is studying the addition of a new valve to its product line. The valve would be used by manufacturers of irrigation equipment. The company anticipates starting with a relatively low sales volume and then boosting demand over the next several years. A new salesperson must be hired because Consolidated's current sales force is working at capacity. Two compensation plans are under consideration: Plan A: An annual salary of $22,000 plus a 10% commission based on gross dollar sales. Plan B: An annual salary of $66,000 and no commission. Consolidated Industries will purchase the valve for $50 and sell it for $80. Anticipated demand during the first year is 6,000 units. (In the following requirements, ignore income taxes.) Problem 7-39 Part 3 3-a. Compute the operating leverage factor of both plans at the anticipated demand of 6,000 units. (Do not round your intermediate calculations. Round your answers to 2 decimal places.) Operating Leverage Factor Plan A Plan B 3-b. Which of the two plans has a higher operating leverage factor? O Plan A O Plan B Required information Problem 7-39 Leverage; Analysis of Operating Change (LO 7-1, 7-4, 7-8) [The following information applies to the questions displayed below.] Consolidated Industries is studying the addition of a new valve to its product line. The valve would be used by manufacturers of irrigation equipment. The company anticipates starting with a relatively low sales volume and then boosting demand over the next several years. A new salesperson must be hired because Consolidated's current sales force is working at capacity. Two compensation plans are under consideration: Plan A: An annual salary of $22,000 plus a 10% commission based on gross dollar sales. Plan B: An annual salary of $66,000 and no commission. Consolidated Industries will purchase the valve for $50 and sell it for $80. Anticipated demand during the first year is 6,000 units. (In the following requirements, ignore income taxes.) Problem 7-39 Part 4 4. Assume that a general economic downturn occurred during year 2, with product demand falling from 6,000 to 5,000 units. Determine the percentage decrease in company net income if Consolidated had adopted Plan A. Plan A profitability decrease by % ! Required information Problem 7-39 Leverage; Analysis of Operating Change (LO 7-1, 7-4, 7-8) (The following information applies to the questions displayed below.) Consolidated Industries is studying the addition of a new valve to its product line. The valve would be used by manufacturers of irrigation equipment. The company anticipates starting with a relatively low sales volume and then boosting demand over the next several years. A new salesperson must be hired because Consolidated's current sales force is working at capacity. Two compensation plans are under consideration: Plan A: An annual salary of $22,000 plus a 10% commission based on gross dollar sales. Plan B: An annual salary of $66,000 and no commission. Consolidated Industries will purchase the valve for $50 and sell it for $80. Anticipated demand during the first year is 6,000 units. (In the wing requirements, ignore income taxes.) Problem 7-39 Part 5 5. Assume that a general economic downturn occurred during year 2, with product demand falling from 6,000 to 5,000 units. Determine the percentage decrease in company net income if Consolidated had adopted Plan B. (Round your answer to 1 decimal place.) Plan B profitability decrease by % O Required information Problem 7-49 CVP; Multiple Products; Changes in Costs and Sales Mix (LO 7-4, 7-5) (The following information applies to the questions displayed below.) Cincinnati Tool Company (CTC) manufactures a line of electric garden tools that are sold in general hardware stores. The company's controller, Will Fulton, has just received the sales forecast for the coming year for CTC's three products: hedge clippers, weeders, and leaf blowers. CTC has experienced considerable variations in sales volumes and variable costs over the past two years, and Fulton believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for 20x2 follows: Unit sales Unit selling price Variable manufacturing cost per unit Variable selling cost per unit Weeders 50,000 $ 28 13 5 Hedge clippers 50,000 $ 36 12 4 Leaf Blowers 100,000 $ 48 25 6 For 20x2, CTC's fixed manufacturing overhead is budgeted at $2,000,000, and the company's fixed selling and administrative expenses are forecasted to be $600,000. CTC has a tax rate of 40 percent. Problem 7-49 Part 1 Required: 1. Determine CTC's budgeted net income for 20x2. Budgeted net income Required information Problem 7-49 CVP; Multiple Products; Changes in Costs and Sales Mix (LO 7-4, 7-5) (The following information applies to the questions displayed below. Cincinnati Tool Company (CTC) manufactures a line of electric garden tools that are sold in general hardware stores. The company's controller, Will Fulton, has just received the sales forecast for the coming year for CTC's three products: hedge clippers, weeders, and leaf blowers. CTC has experienced considerable variations in sales volumes and variable costs over the past two years, and Fulton believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for 20x2 follows: Unit sales Unit selling price Variable manufacturing cost per unit Variable selling cost per unit Weeders 50,000 $ 28 13 5 Hedge Clippers 50,000 $ 36 12 4 Leaf Blowers 100,000 $ 48 25 6 For 20x2, CTC's fixed manufacturing overhead is budgeted at $2,000,000, and the company's fixed selling and administrative expenses are forecasted to be $600,000. CTC has a tax rate of 40 percent. Problem 7-49 Part 2 2. Assuming the sales mix remains as budgeted, determine how many units of each product CTC must sell in order to break even in 20x2. (Do not round intermediate calculations.) Product Line Sales Weeders Hedge Clippers Leaf Blowers Total units units units units Required information Problem 7-49 CVP; Multiple Products; Changes in Costs and Sales Mix (LO 7-4, 7-5) (The following information applies to the questions displayed below.) Cincinnati Tool Company (CTC) manufactures a line of electric garden tools that are sold in general hardware stores. The company's controller, Will Fulton, has just received the sales forecast for the coming year for CTC's three products: hedge clippers, weeders, and leaf blowers. CTC has experienced considerable variations in sales volumes and variable costs over the past two years, and Fulton believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for 20x2 follows: Unit sales Unit selling price Variable manufacturing cost per unit Variable selling cost per unit Weeders 50,000 $ 28 13 5 Hedge Clippers 50,000 $ 36 12 4 Leaf Blowers 100,000 $ 48 25 6 For 20x2, CTC's fixed manufacturing overhead is budgeted at $2,000,000, and the company's fixed selling and administrative expenses are forecasted to be $600,000. CTC has a tax rate of 40 percent. Problem 7-49 Part 3 3. After preparing the original estimates, management determined that its variable manufacturing cost of leaf blowers would increase by 20 percent, and the variable selling cost of hedge clippers could be expected to increase by $1.00 per unit. However, management has decided not to change the selling price of either product. In addition, management has learned that its leaf blower has been perceived as the best value on the market, and it can expect to sell three times as many leaf blowers as each of its other products. Under these circumstances, determine how many units of each product CTC would have to sell in order to break even in 20x2. (Do not round intermediate calculations.) Product Line Sales units units Weeders Hedge Clippers Leaf Blowers Total units units