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 | 6,300 | 5,800 | 7,200 | 8,600 | ||||||||
Sales revenue | $ | 762,300 | $ | 701,800 | $ | 871,200 | $ | 1,040,600 | ||||
Less: Cost of goods sold | 405,450 | 378,972 | 453,024 | 530,706 | ||||||||
Gross margin | $ | 356,850 | $ | 322,828 | $ | 418,176 | $ | 509,894 | ||||
Less: Operating expenses | ||||||||||||
Shipping expense | $ | 64,100 | $ | 53,400 | $ | 67,600 | $ | 64,500 | ||||
Advertising expense | 89,500 | 89,500 | 89,500 | 89,500 | ||||||||
Salaries and commissions | 164,700 | 136,500 | 168,000 | 167,000 | ||||||||
Insurance expense | 15,500 | 15,500 | 15,500 | 15,500 | ||||||||
Amortization expense | 48,500 | 48,500 | 48,500 | 48,500 | ||||||||
Total operating expenses | $ | 382,300 | $ | 343,400 | $ | 389,100 | $ | 385,000 | ||||
Net income | $ | (25,450 | ) | $ | (20,572 | ) | $ | 29,076 | $ | 124,894 | ||
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 80,500 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 $11.00 each and annual sales were to increase by 7,600 units.
4. Determine the change in profit if the company were to increase advertising by $113,000 and if this were to increase sales by 7,600 units.
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