Question
The following information is available for Year 1 for Solano Products: Revenues (100,000 units) $725,000 Manufacturing Costs: Materials (variable) $42,000 Variable Costs (other) $35,600 Fixed
The following information is available for Year 1 for Solano Products:
Revenues (100,000 units) | $725,000 | |
Manufacturing Costs: | ||
Materials (variable) | $42,000 | |
Variable Costs (other) | $35,600 | |
Fixed Costs (excluding depreciation) | $81,900 | |
Depreciation (fixed) | $249,750 | $409,250 |
Marketing & Administrative Costs: | ||
Marketing (variable) | $105,600 | |
Depreciation of Marketing Buildings and Equipment | $37,400 | |
Administrative (fixed) (excluding depreciation) | $127,300 | |
Administrative Depreciation | $18,700 | $289,000 |
Total Costs | $698,250 | |
Operating Profits | $26,750 |
All depreciation costs are fixed and are expected to remain the same for Year 2. Management expects sales volume to increase by 10 percent, and sales prices per unit to increase by 5 percent in Year 2 compared to Year 1. Management expects materials and other variable manufacturing costs to increase by 5 percent. Management expects variable marketing costs to increase 1 percent per unit and all fixed costs, excluding depreciation, to increase 3 percent in Year 2 compared to Year 1.
Management wants to increase profits by 20 percent over Year 1's budget of $26,750. Are profits expected to increase by 20 percent? Why or why not?
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