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148. Interior Masters manufactures decorative iron railings. In preparing for next year’s
operations, management has developed the following estimates:
Required:
Compute the following items:
a. Unit contribution margin.
b. Contribution margin ratio.
c. Break-even in dollar sales.
d. Margin of safety percentage.
e. If the sales volume increases by 20%, with no change in total fixed costs, what will be the
change in operating profit?
f. If the per unit variable production costs increase by 15%, and fixed selling and administrative
costs increase by 12%, what will be the new break-even point in dollar sales?
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149. Anderson Co. manufactures and sells adjustable windows for remodeling homes and new
housing. Anderson developed its budget for the current year assuming that the windows would
sell at a price of $400 each. The variable costs for each window were forecasted to be $200 and
the annual fixed costs were forecasted to be $100,000. Anderson had targeted a profit of
$400,000.
While Anderson’s sales usually rise during the second quarter, the May financial statements
reported that sales were not meeting expectations. For the first five months of the year, only 350
units had been sold at the established price, with variable cost as planned, and it was clear that
the target profit for the year would not be reached unless some actions were taken. Anderson’s
president assigned a management committee to analyze the situation and develop several
alternative courses of action. The following three alternatives were presented to the president,
only one of which can be selected.
1. Reduce the selling price by $40. The marketing department forecasts that with the lower price,
2,700 units could be sold during the remainder of the year.
2. Lower variable costs per unit by $25 through the use of less expensive materials. Because of
the difference in materials, the selling price would have to be lowered by $30 and sales of 2,200
units for the remainder of the year are forecast.
3. Cut fixed costs by $10,000 and lower the selling price by 5 percent. Sales of 2,000 units would
be expected for the remainder of the year.
Required:
a. If no changes are made to the selling price or cost structure, estimate the number of units that
must be sold during the year to break-even.
b. If no changes are made to the selling price or cost structure, estimate the number of units that
must be sold during the year to attain the target profit of $400,000.
c. Determine which of the alternatives Anderson’s president should select to maximize profit.
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150. Perkins Co. produces and sells a single product. The company’s income statement for the
most recent month is given below:
There are no beginning or ending inventories.
Required:
a. Compute the company’s monthly break-even point in units of product.
b. What would the company’s monthly operating profit be if sales increased by 25% and there is
no change in total fixed costs?
c. What dollar sales must the company achieve in order to earn an operating profit of $50,000 per
month?
d. The company has decided to automate a portion of its operations. The change will reduce
direct labor costs per unit by 40 percent, but it will double the costs for fixed factory overhead.
Compute the new break-even point in units.
151. Top Hat Inc. produces and sells a single product. Data concerning that product appear
below:
Fixed costs are $226,000 per month. The company is currently selling 2,000 units per month.
Required:
The marketing manager would like to cut the selling price by $12 and increase the advertising
budget by $13,000 per month. The marketing manager predicts that these two changes would
increase monthly sales by 200 units. What should be the overall effect on the company’s monthly
operating profit of these changes?
152. Dustin Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed costs are $516,000 per month. The company is currently selling 7,000 units per month.
Required:
The marketing manager would like to introduce sales commissions as an incentive for the sales
staff. The marketing manager has proposed a commission of $9 per unit. In exchange, the sales
staff would accept an overall decrease in their salaries of $55,000 per month. The marketing
manager predicts that introducing this sales incentive would increase monthly sales by 200 units.
What should be the overall effect on the company’s monthly operating profit of these changes?
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153. Penny Company offers two products. At present, the following represents the usual
results of a month’s operations:
Required:
a. Find the break-even point in dollars.
b. Find the margin of safety in dollars.
c. The company is considering decreasing product A’s unit sales to 80,000 and increasing product
B’s unit sales to 180,000, leaving unchanged the selling price per unit, variable cost per unit, and
total fixed costs. Would you advise adopting this plan?
d. Refer to (c) above. Under the new plan, find the break-even point in dollars.
e. Under the new plan in (c) above, find the margin of safety in dollars.
154. Data concerning Golding Corporation’s single product appear below:
Fixed costs are $444,000 per month. The company is currently selling 7,000 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by
$2. Since the new component would improve the company’s product, the marketing manager
predicts that monthly sales would increase by 200 units. What should be the overall effect on the
company’s monthly operating profit of this change if fixed costs are unaffected?
155. Churchill Corporation produces and sells a single product. Data concerning that product
appear below:
Required:
a. Assume the company’s monthly target profit is $69,000. Determine the unit sales to attain that
target profit.
b. Assume the company’s monthly target profit is $41,400. Determine the dollar sales to attain
that target profit.