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 | 5,100 | 4,600 | 5,400 | 6,200 | ||||||||
Sales revenue | $ | 703,800 | $ | 634,800 | $ | 745,200 | $ | 855,600 | ||||
Less: Cost of goods sold | 373,650 | 342,792 | 387,504 | 436,356 | ||||||||
Gross margin | $ | 330,150 | $ | 292,008 | $ | 357,696 | $ | 419,244 | ||||
Less: Operating expenses | ||||||||||||
Shipping expense | $ | 61,700 | $ | 55,800 | $ | 65,200 | $ | 70,500 | ||||
Advertising expense | 71,500 | 71,500 | 71,500 | 71,500 | ||||||||
Salaries and commissions | 161,100 | 142,500 | 162,000 | 180,000 | ||||||||
Insurance expense | 9,500 | 9,500 | 9,500 | 9,500 | ||||||||
Amortization expense | 42,500 | 42,500 | 42,500 | 42,500 | ||||||||
Total operating expenses | $ | 346,300 | $ | 321,800 | $ | 350,700 | $ | 374,000 | ||||
Net income | $ | (16,150 | ) | $ | (29,792 | ) | $ | 6,996 | $ | 45,244 | ||
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. (Do not round intermediate calculations. Round "Per Unit" answers to 2 decimal places.)
2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 67,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.)
3. Calculate the change in profit if the selling price were reduced by $4.50 each and annual sales were to increase by 5,200 units.
4. Determine the change in profit if the company were to increase advertising by $101,000 and if this were to increase sales by 5,200 units.
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