Question
The Central Valley Company is a manufacturing firm that produces and sells a single product. The companys revenues and expenses for the last four months
The Central Valley Company is a manufacturing firm that produces and sells a single product. The companys revenues and expenses for the last four months are given below. |
Central Valley Company Comparative Income Statement | ||||||||||||
March | April | May | June | |||||||||
Sales in units | 6,700 | 6,200 | 7,800 | 9,400 | ||||||||
Sales revenue | $ | 717,000 | $ | 647,000 | $ | 797,000 | $ | 857,000 | ||||
Less: Cost of goods sold | 378,500 | 350,500 | 387,500 | 443,000 | ||||||||
Gross margin | $ | 338,500 | $ | 296,500 | $ | 409,500 | $ | 414,000 | ||||
Less: Operating Expenses | ||||||||||||
Shipping expense | $ | 64,900 | $ | 52,600 | $ | 68,400 | $ | 62,500 | ||||
Advertising expense | 95,500 | 95,500 | 95,500 | 95,500 | ||||||||
Salaries and commissions | 165,900 | 134,500 | 170,000 | 165,000 | ||||||||
Insurance expense | 17,500 | 17,500 | 17,500 | 17,500 | ||||||||
Amortization expense | 50,500 | 50,500 | 50,500 | 50,500 | ||||||||
Total operating expenses | $ | 394,300 | $ | 350,600 | $ | 401,900 | $ | 391,000 | ||||
Net income | $ | (55,800 | ) | $ | (54,100 | ) | $ | 7,600 | $ | 23,000 | ||
Required: |
1. | Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs. | |||||||||||||||||||||||||||
Correct answer was already determined as follows:
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2. | Assume that fixed costs are incurred uniformly throughout the year. Compute the annual profit if 86,500 units are sold during the year. |
3. | Calculate the change in profit if the selling price were reduced by $13.0 each and annual sales were to increase by 8,400 units. |
4. | Determine the change in profit if the company were to increase advertising by $117,000 and if this were to increase sales by 8,400 units. |
Important Additional Notes! - Selling Price is supposed to be determined by the figures provided in March, as the "selling prices" are not consistent across all months. This is a flaw in the question. - Unfortunately, the question does not indicate how the selling price number for March should be rounded. Since 717,000 / 6700 = 107.0149254, this presents precisely the issue I am having with the question. - However, the answer for Question 3, which was correct when I checked my work, was determined to be $683,668 when Selling Price was left @ $107.01. - At the same time, answers to Questions 2 and 4 were incorrect, at $3,421,902 and $433,032 respectively, but selling price was left @ $107.01 in question 2 as well. - I just wanted to see if there are any major flaws in my arithmetic when the selling price is given at $107.01. This might explain why my answers to 2 and 4 came back as incorrect. - Alternatively, I'd like to know if the answer to question 3 (683,668) can be found if the decimals are input differently. This may be another avenue by which I can get the question right. | |
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