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 6,400 5,900 7,350 8,800 Sales revenue $ 768,000 $ 708,000 $ 882,000 $ 1,056,000 Less: Cost of goods sold 408,100 382,320 458,640 538,560 Gross margin $ 359,900 $ 325,680 $ 423,360 $ 517,440 Less: Operating expenses Shipping expense $ 64,300 $ 53,200 $ 67,800 $ 64,000 Advertising expense 91,000 91,000 91,000 91,000 Salaries and commissions 165,000 136,000 168,500 166,500 Insurance expense 16,000 16,000 16,000 16,000 Amortization expense 49,000 49,000 49,000 49,000 Total operating expenses $ 385,300 $ 345,200 $ 392,300 $ 386,500 Net income $ (25,400 ) $ (19,520 ) $ 31,060 $ 130,940 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 82,000 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 $11.50 each and annual sales were to increase by 7,800 units. 4. Determine the change in profit if the company were to increase advertising by $114,000 and if this were to increase sales by 7,800 units.
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