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The Central Valley Company is a manufacturing firm that produces and sells a single product. The company's revenues and expenses for the last four months
The Central Valley Company is a manufacturing firm that produces and sells a single product. The company's revenues and expenses for the last four months are given below. Central Valley Company Comparative Income Statement March April May June Sales in units 5,200 4,700 5,550 6,400 Sales revenue $ 712,400 $ 643,900 $ 760,350 $ 876,800 Less: Cost of goods sold 376,300 347,706 395, 382 447, 168 Gross margin $ 336, 100 $ 296, 194 $364,968 $ 429,632 Less: Operating expenses Shipping expense $ 61,900 $ 55,600 $ 65,400 $ 70,000 Advertising expense 73,000 73,000 73,000 73,000 Salaries and commissions 161,400 142,000 162,500 179,500 Insurance expense 10,000 10,000 10,000 10,000 Amortization expense 43,000 43,000 43,000 43,000 Total operating expenses $ 349,300 $ 323,600 $ 353,900 $375,500 Net income $ (13,200) $ (27,406) $ 11,868 $ 54,132 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.) Cost of goods sold Shipping Salaries & commission per unit per unit per unit 2. Assume that fixed costs are incurred uniformly throughout the year. Compute the annual break-even sales, and the profit if 68,000 units are sold during the year. (Round "Break-even sales" answer to nearest whole number.) units Break-even sales Annual profit (68,000 units) 3. Calculate the change in profit if the selling price were reduced by $5.00 each and annual sales were to increase by 5,400 units. 4. Determine the change in profit if the company were to increase advertising by $102,000 and if this were to increase sales by 5,400 units
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