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2. TrueBeat - Revised Cost Structure (relevant range 4,000 to 8,000 units) Average Cost per Unit Total Helpful Hints Dollars References (* *) Sales price round to whole dollar 489 [1) Sales price x 95% (whole $5) Direct materials 53 (2) Same as above Direct labor 104 (3) DL above + $18 Variable overhead 26.50 (4) 50% x DM Variable selling & admin expense 10.50 (5) VS&A above x 50% Total variable costs per unit 194.00 Add cost rows above Fixed overhead 192000 (6) FOH above x 300% Fixed selling & admin expense 512000 (7) FS&A above + 250,000 (**) References (1) Decrease sales price by 5% (95% of original sales price) (rounded to nearest whole dollar) (2) Direct Material will be unchanged from table in 1. (3) Direct Labor per unit will be increased by $18 per unit. Add $18 to the DL from table in 1. (4) Variable Overhead per unit will be equal to 50% of the Direct Material. DM from (1) x 50% (5) Variable Selling and Administrative will be reduced by half. VS&A from table in 1 x 50% (6) Fixed overhead will increase by 300%. FOH from table in 1 x 300%. (7) Fixed Selling and Administrative will increase by $250,000. FS&A from table in 1 + 50,000. Project 1: Page 3 of 14 b) What is Contribution Margin per unit, CMunit, under TrueBeats revised cost structure? The contribution margin is $295. c) Use the summarized cost structure from the table in 2 and complete the CVP Profit formula below: NOI = 295 Q - 704,0007) Changing sales price: Marketing research indicates that WCompany can sell more units of its product ifthey lower their sales price by 10%perunit. Remember to treattbis scenario as independent 'om the items considered in IS. Remember to calculate as changes to the \"base" scenario, Prot Formula in 2b. a) b} d} E) Calculate the new (1) sales price and (ii) contribution margin per unit. i) new sales price use 2 decimals ii) CM per unit iii] What will the new Prot formula be? N01 = Q - How many units will they need to sell to make the same operating income {NOD as originally projected for year 4 {base assumption)? How many units will they need to sell to break-even at the new sales price? If My; Company can sell 20% more units (0.20 times original units) with the decreased sales price, how much operating income will they make? Conclusion: Using the information calculated above, should Meg} lower their sales price? Why or why not? Will their relevant range be an issue for this decision? Your answer should include full sentences and 3G to 50 words. 8) Increase Fixed Costs: W; management is also considering purchasing additional advertising for $300,000. a) How man},r additional units will Mneed to sell to recover the $300,000 of advertising cost? h) Marketing studies suggest that sales will increase by 1,000 units a year, what will the new Net Operating Income be? c) Should the company purchase spend the $300,000 on advertising? Why or why not? Answer in 30 to 50 words. 9) More Fixed Costs: Marketing studies suggest that by spending $1,500,000 on an expanded advertising campaign targeting new regional markets, the company could increase their sales volume to as many as 10,000drumsets ayear. a) How much Net Operating Income would meect assuming the same cost structure {base scenario plus $1,500,000 advertising)? b} Would you recommend Wpursue the expanded advertising campaign? Answer in 30 to 50 words and identify at least two issues the company should consider when making the decision
