Question

In: Accounting

ABC, Inc. is a newly organized manufacturing business this year. The following company's costs and expenses...

ABC, Inc. is a newly organized manufacturing business this year.

The following company's costs and expenses are:

Sales price per unit		$41
Manufacturing costs:				Fixed Costs	Variable Costs
		Direct materials			$8
		Direct labor			6
		Variable Manufacturing overhead			3
		Fixed Manufacturing overhead		$80,000
	Period expenses:
		Variable Selling and administrative expenses			4
		Fixed Selling and Administrative expenses		20,000
	Totals			$100,000	$21
Units sold		6,000	units

Required: Use the information in the DATA field above using cell referencing to answer the following requirements.

1. Prepare a contribution income statement for the year ignoring income tax implication.

2. Calculate the breakeven point in units.

3. Calculate the breakeven point in sales dollars.

4. Calculate the margin of safety in sales dollars.

5. Calculate the company's operating leverage.

6. Calculate the percentage change in profits if sales are projected to increase by 5%.

7. What if the direct labor cost per unit increases from $6 a unit to $9, what will be the new breakeven in units? Explain why it changed.

You should only have to change the direct labor in the data area and actually all your answers should be updated. Please put the direct labor cost back to the original number once you have answered the question?

8. What if the manufacturing overhead cost decreases from $80,000 to $70,000, what will be the new breakeven in units? Explain why it changed.

You should only have to change the fixed MOH in the data area and actually all your answers should be updated. Please put the fixed MOH cost back to the original number once you have answered the question?

9. The sales manager believes the company could increase sales by 1,000 units if advertising expenditures were increased by $22,000.

Determine the change in the dollar amount of income before taxes, if the company increases advertising expenditures by $22,000. Would you recommend this advertising campaign based on financial results? Why?

Expert Solution

ekkarill92 answered 2 years ago

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