The Blake Manufacturing Corporation manufactures and sells folding umbrellas. The corporation's condensed income statement for the year at 31 December 2011 follows:

Sales (200,000 units)

1,000,000

Cost of goods sold

600,000

Gross margin

400,000

Selling expenses

150,000

Administrative expenses

100,000

Net profit (before income taxes)

150,000

Blake's budget committee has estimated the following changes for 2012:

30% increase in number of units sold

20% increase in material cost per unit

15% increase in direct labor cost per unit

10% increase in variable indirect cost per unit

5% increase in indirect fixed costs

8% increase in selling expenses, arising solely from increased volume

6% increase in administrative expenses, reflecting anticipated higher wage and supply price levels

Any changes in administrative expenses caused solely by increased sales volume are considered immaterial.

Because inventory qualities remain fairly constant, the budget committee considered that, for budget purposes, any change in inventory valuation can be ignored. The composition of the cost of a unit of finished product during 2011 for materials, direct labor and manufacturing support, respectively, was in the ratio or 3:2:1. In 2011, 40,000 of manufacturing support was for fixed costs. No changes in production methods or credit policies were contemplated for 2012.

you will assume a consultancy role. You will review current and historical financial data. You will have the opportunity to discuss the organisation's behaviour and reactions to your analyses of this data. Your group will make a recommendation based on a what-if analysis.

Blake has established a budgeted target profit of 200,000. There is a debate brewing within the management ranks of Blake regarding which strategies will put the company in the best position to reach that objective. Blake's CEO would like to adjust prices. The sales manager would like to focus on increasing the number of units sold while maintaining current prices. Your job is to provide an analysis aimed at helping to reach a decision.

To begin this analysis:

Compute the unit sales price at which Blake must sell its product in the current year in order to earn a budgeted target profit of 200,000.

Calculate a value in response to the following: Unhappy about the prospect of a price increase, Blake's sales manager would like data regarding the number of units that must be sold at the former price to earn the 200,000 profit.

Calculate a value in response to the following: Believing that an estimated increase in sales is overly optimistic, a company director is requesting data predicting annual profit if the selling price calculated above is adopted, but the change in sales volume only amounts to a 10% increase.